Orlando, Fla. - If the Starbucks coffee didn't wake up delegates who attended the early morning economist roundtable at Information Management Network's ABS East conference held here last week, then the lively interaction between panelists and their optimistic economic outlooks certainly did.
General economic pressures such as high gasoline prices, a slowdown in the housing market and a tight labor market, are putting the squeeze on consumers, resulting in lingering effects for years to come. With a tight labor market poised for growing unemployment, consumers might become more entrenched with their spending.
As for the corporate sector, profit margins are historically high, but capital investments have been low, said Martin Barnes, a managing director and bank credit analyst at BCA Research in Montreal.
"There has been some erosion of confidence in boardrooms," Barnes said, noting that capital investment in new equipment has dropped from about 10% to 7% in the last year. "That is a meaningful slowdown."
Despite all of this, the general economy does not appear to be headed for a recession, but a mild slowdown. Also, market players can snatch good news from that data, because a slowdown in activity keeps the Federal Reserve from aggressively increasing interest rates, Barnes said.
"We always want the Fed to be happy," Barnes said. He added that if the economy grows at a breakneck pace, then "the Fed will not be happy at all, and they can get nasty, in fact."
That said, the economy will slow down next year, and the Federal Funds rate could be cut to below 4% during that time, said Barnes.
Although Barnes found a silver lining around the somewhat negative economic news, not all the panelists were bearish.
For starters, ABS professionals got a warm thank you from leading economist. Edward Yardeni, chief investment strategist at Oak Associates. While generating liquidity for the mortgage market, securitization insulates the general economy from shocks to the housing sector.
"You guys don't get enough credit," Yardeni said. "You guys take all of these loans that could blow up at any time, and you securitize them."
Although Americans have bought nearly $1.8 trillion in goods from overseas in the last few months, foreigners bought between $800 million to $900 million of U.S. securities products.
As for the housing market, an oversupply of newly constructed homes will result in construction slowdowns in the months to come, said David Resler, managing director and chief economist at Nomura Securities.
That will reduce GDP slightly, but several factors will keep the U.S. economy moving through more difficult times, he said.
The outlook for commercial real estate is good, because a significant number of corporations are investing in equipment, and are consequently buying real estate to house their goods.
"We have weathered several storms recently, and we've done so while maintaining reasonable economic growth," Resler said. He noted that the economy has only been in recession for a total of 16 months since 1989, as opposed to being in recession for about 30% of the time since 1969. "Most Americans don't remember real pain."
Even if they did remember, said panelists, Americans routinely resort to retail therapy to alleviate their anxieties.
"When we're happy, we spend money," Yardeni said, of U.S. consumers. "When we're depressed, we spend even more. God bless America."
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