Nov. 25, 2015

U.S. Remains 'Bright Star' of Global Economy

The U.S. economy will grow 2.0 to 2.5 percent in 2016, consistent with its sluggish growth of the recent past, predicts Michael Skordeles, senior vice president and senior market strategist for SunTrust Banks, Atlanta. The nation’s economy has experienced GDP growth between 2.2 and 2.4 percent each of the last four years. Still, that low-level growth makes the U.S. “the bright star in the world economy,” said Skordeles, a speaker at last month’s MSCI Aluminum Products Division Conference in Scottsdale, Ariz. He also forecasts “global recalibration” and an emphasis on lower government monetary policy.

Although the U.S. is not booming, its economic position is enviable compared with other major markets. Japan is teetering on the brink of recession, a number of European countries are in and out of a downturn, and China faces numerous issues as its growth slows. All of those regions are suffering population declines, while the U.S. continues its yearly growth rate of 1.0 to 1.2 percent. “The fact we have population growth year-in and year-out is a major advantage for our economy,” he said.

Also working in favor of the domestic economy is the energy revolution. Either horizontal drilling or frakking would have been game-changing technologies for any economy, and the U.S. is the beneficiary of both. Moreover, the chief advantage of such a wealth of resources is not what gets pulled out from the ground, but its impact on the rest of the economy. Lower energy prices for the foreseeable future will serve as a major competitive advantage for U.S. industry, he said.

On global recalibration, Skordeles noted the world is returning to its normal state of disintegration. The catastrophic financial crisis of 2008-09 pulled the major economies down simultaneously, but such a situation is unusual. “Our economies are not supposed to be synchronized. We don’t have the same drivers, so there’s no reason to think we’re going to stay synchronized,” he said.

This divergence will be accompanied by differing government responses in regards to monetary policy. Domestically, an interest rate hike will be coming, he said. It’s only a question of whether it happens before year’s end or sometime in the first quarter. He also expects the dollar to continue to strengthen, though most of its gains have already taken place.

Neither a higher interest rate nor a strong dollar should be seen as a major concern for economic growth. Though the metals industries may not benefit directly, they will indirectly. The dollar gives consumers stronger purchasing power, and consumer spending continues to be the main driver for the U.S. economy. The economy is positioned to absorb an interest rate hike of a quarter or even a half percent. It has enjoyed more robust growth in the past during periods of much higher interest rates and a much stronger dollar than the current conditions.

Despite the projection of a modest rate hike, Skordeles said, lower for longer will remain the rule governing most policy decisions. Lower interest rates, lower bond yields and lower inflation can be expected well into the future.

“The U.S. economy is no longer in crisis mode, so our monetary policy doesn’t have to be in crisis mode either,” he said. “We need to start moving.”


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Monday, October 16, 2017