Economists predict Trump bump to benefit U.S. and some metro economies

The state of economies around the world were discussed Friday (Jan. 27) at the Regional Economic Forecast Luncheon hosted by the University of Arkansas, an annual event that draws hundreds of business and professional leaders as well as academic leadership from around the state.

Stuart Mackintosh, executive director at Group of Thirty, based in Washington, D.C. gives the global economy a solid B- rating which is a little better than the C+ it garnered in 2016. Mackintosh told Talk Business & Politics the numbers should look better in 2017 as Great Britain won’t slow as much, China will likely hold the line at 6.5% growth and Europe is also expected to be marginally better this year.

“Europe is running at near potential, so I don’t think there is a lot of upside there. There are some risks to the growth forecast, particularly in China. … I think the U.S. will add to the overall growth of the global economy this year in part of the Trump bump, but again potential policy changes could have a positive and negative impact on the U.S. economy. It’s too early to really know how the policy changes in the U.S. will unfold in the next year and half,” Mackintosh told Talk Business & Politics.

He said the International Monetary Fund expects U.S. growth of 2.2% this year, revised downward in July by 0.3% as the economy slowed a bit in 2016. The world economy is pegged at 3.4%, which means the U.S. will likely underperform the world.

Mackintosh said China’s government is likely to exert more control as its debt levels continue to rise to 290% of Gross Domestic Product in 2015. He said this debt level, largely in real estate, remains high. Real estate prices are also rapidly increasing across China as are labor costs. He said most busts are real estate related and there are risks of that in China which have to be considered. Adding to that risk is 30% of the outstanding debt is held by non-banks — akin to the mortgage-backed securities that were largely responsible for the housing crash in the U.S. a decade ago.

While global growth rate predictions are a little better for this year, the risks with stalled globalization, China’s debt and nationalism campaign threatening the break up of the European Union, Mackintosh said 2017 is not likely to be all smooth sailing on the global stage.

U.S. ECONOMY
Ellen Hughes-Cromwick, recent chief economist for U.S. Department of Commerce, gives the U.S. economy five stars for its ability to sustain modest growth levels for 31 consecutive quarters post recession. She said expansions do not die of old age. The present business expansion cycle is now 7.5 years old and the third longest in U.S. history.

“It’s far better to maintain even modest growth over time than to experience unsustainable highs followed by lows,” Hughes-Cromwick said in her prepared remarks.

She said consumer data continues to be favorable and that’s a positive for the U.S. economy. The one area where improvement is still needed is in business investments as companies are still hoarding cash instead of expanding or raising wages. Hughes-Cromwick expects policy considerations might help loosen the wallets for business investments given lower taxes are promised as well as unraveling regulations for the banking and healthcare sectors.

“The perceived policy changes could be a boost for the U.S. economy but I don’t think much of that will be seen in 2017. It’s more likely to play out in 2018,” she said.

She also cautioned against over-exuberance or errors in optimism because while much is going right, there is always the risk of an oil price shock that can rock the economy top to bottom.

When asked which employment sector has the greatest growth potential in 2017, she said health care as one in four of the new jobs created in the U.S. are related to health care. She said technology remains a growing sector while manufacturing has reached saturation levels in terms of those jobs being re-shored.

NORTHWEST ARKANSAS
Kathy Deck, director of the Center for Business and Economic Research at the University of Arkansas, expects about 4,400 new jobs created in the Northwest Arkansas metro in 2017, with about 1,000 of those healthcare related.

“These health care numbers are baked in the cake. The infrastructure building is already underway and will require people to run them,” Deck said.

She said healthcare jobs are not likely at risk with potential shocks that happen in the national and global economies. Deck said the metro population is growing between 10,000 and 11,000 each year.

One concern is the mismatch between available jobs and talent in the area. She said this is a growing problem worldwide and it’s not better at home. She said the low unemployment rate is good, but a close look at the numbers shows there are still too many people working in jobs that don’t fully maximize their talent or income potential.

Deck said Northwest Arkansas continues to be pacesetter for the state in terms of job growth and economic output and that’s not likely to change in 2017. Longer term, Deck is concerned about workforce shortage issues and the role technology might play in replacing manpower in truck driving careers to retail and supply chain, all of which are major contributors to the region’s GDP.

She said the trade and transportation sector, largest employment sector in the region and state continue to see competitive pressures and that’s not likely to change.

“Last year I said the local economy had found its cruising altitude, and this year I think we are circling in order to try and avoid turbulence. I don’t think we are headed for a landing yet,” Deck said.

STATEWIDE FOCUS
Deck took a few minutes in her prepared remarks to talk about the major metro areas around the state starting with Fort Smith. She said Fort Smith has not had the ability to regain the jobs lost at Whirlpool in 2009, but the metro area has maintained its jobs at a steady pace with a workforce of around 110,000 over the past seven years.

The Central Arkansas metro job growth out of the recession produced a workforce of just under 360,000 last year. Deck said professional and business service jobs along with health services and leisure and hospitality continue to be sectors with the biggest growth potential around the state. She said the collapse in oil prices and reduced activity in the Fayetteville Shale Play in central Arkansas curtailed job growth in recent years.

Jonesboro is another bright spot in the state, with solid job growth although a much smaller base. Deck said the number of employed rose from 50,000 in 2007 to more than 60,000 last year.

Deck expects to see 4,800 jobs created statewide in 2017, noting that 4,400 are slated for Northwest Arkansas alone. Deck said higher per capita income is also needed across the state. She said communities with higher per capita income will typically invest in soft amenities that can lead to a virtuous cycle of growth.