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Economy's 'In a Really Good Place'

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"The U.S. is in a really good place right now. Be willing to spend money on yourself," economist Alan Beaulieu advised his audience of red metals executives during the recent Copper and Brass Servicenter Association annual meeting in Las Vegas.

Many people still consider the economy to be "recovering." Actually, it has been in a growth mode for nearly five years, ever since the recession ended in the summer of 2009, said Beaulieu, a principal of ITR Economics, Boscawen, N.H. GDP is forecast to grow at a 3.3 percent rate through 2015, fueled by continued government stimulus, more job creation, ready availability of credit, better retail sales and accelerating construction activity. That promising prosperity could be short-lived, however, as another recession is possible in 2018-19. "So save cash now," he said, "so you can buy in the next recession when things are cheap."

Commenting on the key automotive market, Beaulieu expects vehicle production to slow in this year's third quarter, along with the economy in general. Last year the industry in North America produced just over 16 million vehicles. In 2014, ITR forecasts production of about 15.6 million units, a decline of 2.4 percent, contrary to more bullish industry forecasts.

Also slowing is the rate of change in the housing market. ITR expects 955,000 housing starts this year, just a 3.4 percent gain. "People have stopped applying for mortgages. For young homebuyers bogged down by student loans, even a 1 percent change in the interest rate can keep them out of the housing market," Beaulieu noted.

Average wages for workers are growing at a 2.3 percent rate, yet market conditions don't allow most companies to raise their prices. "We have to figure out a way to drive more efficiencies," he said. He recommends that employers use the Consumer Price Index as a tool when setting wage rates to match inflation and help employees maintain their buying power.

The argument over America's widening income disparity--the rich getting richer while the poor keep falling further behind--is a myth, Beaulieu contends. While it is true that nearly 4 percent of all households make over $200,000 per year today, up from less than 1 percent in 1967, it is also true that more low- and middle-income families have moved up, as well. Households earning less than $50,000 now represent 50 percent of the population, down from over 60 percent five decades ago. Those in the $50,000 to $200,000 range now account for about 46 percent of all households, up from 38 percent. "Upward mobility in the U.S. is the same as it was 50 years ago," Beaulieu said.

Other bits of good news for the U.S. economy: There's still time to borrow money for big projects; interest rates will remain low for another year, but will likely start to edge up in 2015. Expansion of the Panama Canal will greatly expand shipping to U.S. ports. And economic recovery in the European Union will boost the volume of U.S. imports and exports.

The U.S. economy is not out of the woods yet, Beaulieu warned. Unemployment, while improving, remains too high. The growth rates in auto sales and corporate profits are slowing. The government can't hold the line on interest rates indefinitely without risking ruinous inflation. The Affordable Care Act, which requires everyone to buy insurance, will cut into discretionary income and take a toll on consumer spending. And as large numbers of aging baby boomers start to apply for Social Security "we are going to find ourselves upside down and in trouble due to the growing federal debt," he said.

Pointing to copper futures prices, he predicts they will "mostly move sideways" in 2014. "China is reversing direction from austerity to stimulus again, which may give a little boost to demand and copper prices later this year."

["Upward mobility in the U.S. is the same as it was 50 years ago." Alan Beaulieu, ITR Economics]

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