by PAMELA HULSE ANDREWS Cascade CBN Editor
A recent conversation with Fred Dickson, chief investment strategist for D.A. Davidson Companies based in Lake Oswego, gave a fresh look at the economic recovery.
Dickson, as most economic strategists will tell you, says that our economy is in a five year economic expansion showing the 15th quarter in a row of all time record output and growth. He notes that it’s really interesting the stock market has been up 30 percent, well above anything his company expected.
Of course economists are usually trying to cover their outlook by offering both the positive and the negative including Bill Conerly, chair of the board of Cascade Policy Institute and former economist for First Interstate Bank, who recently wrote for Forbes stating, “The economy has several positives and several negatives as we move forward in 2013 and look to 2014. The plus side begins with the economy’s normal tendency to expand. We have a growing labor force and continuing capital formation and technological improvement. More importantly, we have entrepreneurs trying to create greater value in their goods and services, at less cost. That by itself would keep the economy moving forward in the absence of strong negatives.”
The Wall Street Journals’s survey of economists finds the most common estimate of the odds of a recession in the coming 12 months is 20 percent, a figure that Conerly concurs with.
Dickson maintains that the economy is growing and expanding but wonders just how many people believe that. If you ask a group of business people hardly anyone will say they think the economy is on a growth spurt.
Why is that? Dickson gives some very compelling reasons:
1. The news media continues to write/air articles that position the economy still in a recession, focusing on the plights of low income wage earners and not highlighting the good things happening in the job market.
2. Unemployment rates are still high even though down from 10.5 to 6 percent. But if you look back through the years there was a time when people thought that 6 percent was good. What you don’t hear, according to Dickson, is that there are between 5 and 7 million jobs open that are not being filled. You never hear about the open positions that employers have, or that many have a hard time finding qualified workers. There is a good percentage of those on unemployment who are not physically qualified or even willing to work and many are unable to pass a drug test. (Ten years ago companies rarely tested for drugs, but now many have found it necessary to enforce drug testing in the workplace.)
3. While financial balance sheets have improved and property values are going up, people are still skeptical and not believing in the confidence of the economy.
Dickson has tracked the broad economy, over 50 years and says there are several factors that lead up to a dip in the economy, but he only sees two possibilities that might have a negative impact. 1) Emerging market economies have slowed, small countries have mounting debt, monetary challenges and social problems such as Argentina, Thailand, Turkey and Hungary. 2) Growing and increasing mergers and acquisitions such as Facebook buying a company called WhatsApp for $19 billion. Why? They have a lot of cash and having trouble growing their own business and in order to expand the only way they can do it is through huge acquisitions. More big deals mean short term growth for the stock market variable, but it’s also an indicator that business leaders are getting a little bit over confident.
Dickson also reports that he is keeping an eye on short term dark clouds that could cause the stock market to move down 5-10 percent including the extension of extreme weather conditions, global reaction to political problems in Syria and the Ukraine and the global economic fallout to the slowdown of the Chinese economy.
Good things happening according to Dickson:
1. Federal reserve continues to pump money into the economy and banking systems. In the last few years they have increased their balance sheet by adding $4 trillion to the economy, improving money supply and building bank reserves. This year they will add close to another $1 trillion. This should help mortgage and auto financing and provide businesses with available credit card balances to finance their businesses.
2. Interest rates remain extraordinarily low that allow individuals and business to finance growth very cheaply.
3. The valuation level of the stock market is 15 times higher than projected earnings; it is not excessively valued and there are no visual signs of a speculative blow off.
4. Broader economic indicators show measured growth and solid year over year growth.
5. Corporations are able to maintain current high profit margins.
6. Inflation still is not a problem mainly due to the fact that employees are not moving from job to job…the biggest driver of inflation is when people move across the street for a 5 percent increase.
Consequently economists are describing the stock market and the economy in a long term expansion that, says Dickson, has the strength to run a couple more years with federal reserve action being the future catalyst that either sustains this growth or puts the stop on it.
As we’ve discussed in previous editorials, there are a lot of local economic factors that bode well for Central Oregon’s continued economic improvements from lower unemployment rates, burgeoning aviation industry, new construction, increase in tourism and the development of a four-year university.
What do we, as local business owners/managers, need to do with all this information? Believe it.
