Low energy prices, low interest rates, and low or no inflation mean the U.S. economy will continue to purr along nicely in 2016 despite the growth problems in China and Europe, says the Westfield Group.
The Westfield Bank of Fairlawn AKRON, Ohio -- The outlook for the U.S. economy is mostly positive during the next year, but the region's reliance on exports means local growth may lag a bit, predicts a top regional economist.
"The economy faces some challenges, but we don't see a recession on the horizon and we see a better year for economic growth (in 2016) than in 2015," said Rich Nash, an equity portfolio manager at the Westfield Group, in an interview Friday following his presentation to more than 125 members of the Greater Akron Chamber. "The real risks to the U.S. economy are international."
Rich Nash Northeast Ohio's economy is "still a little bit more export-based than the U.S. economy in general," he added. "So, a stronger dollar negatively weighs on our economy more than the national economy."
The latest unemployment figures released during Nash's presentation Friday put the national unemployment rate at just 5 percent -- raising the chances from 50-50 to 75 percent that the Federal Reserve Bank will increase interest rates, Nash and Jon Park, chairman, CEO and president of the Westfield Bank, told the crowd.
If interest rates are raised, it won't be by much, said Park, predicting "when the Fed starts to raise rates, their first move, projected to be 1/4 pint, maybe 1/2 point, looks like a non-event with little negative impact to the U.S. economy."
The rate increases will be gradual, but won't stop at a fraction of a percentage point, said Park. In 1986, the Fed increased rates 4.5 percent over 30 months. In 1994, it increased rates 3 percent over 10 months and in 2004, it increased them 4.3 percent over 27 months.
"So, history suggests once the Fed begins a tightening cycle, rates increase at least 3 percent over a somewhat short time period," he said.
Jon Park The local economy will feel the pinch of an interest rate increase a bit more than than the national economy, Nash said during an interview.
"I would expect that if the Fed starts hiking in 2016, that our economy will feel the pinch more from an export basis than the national economy will."
But the business perils of an interest-rate increase or the chances of a recession were just two items on the agenda.
Nash and Park used their one-hour, fact-packed presentation to present a comprehensive overview of the forces shaping the U.S. domestic economy and wrapped it up with a prediction of soft but continuous growth, with little chance of a recession until 2018 at the earliest.
A few economic indicators that could lead to economic trouble include sluggish growth of corporate value, as measured by the S&P 500 stock index, a slow down in commercial construction and a decline in the average work week, they said.
In the longer run, fewer and fewer people appear to be actually working, said Nash, with labor force participation now at 62.4 percent, the lowest since 1977.
Educational levels are directly related to that dismal fact, he added. Only 45 percent of high school graduates are working, compared with 74 percent of college graduates.