SALEM — With some caveats, a bank executive said here Jan. 23 that he believes the U.S. economy is “on the road to recovery.”
Speaking at the annual meeting of the Agri-Business Council of Oregon, Michael Stead, executive vice president of the capital markets division for Bank of the West, identified several signs that the economy is improving: the Gross Domestic Product growth rate is up to 2.7 percent and possibly even higher, he said, home prices are starting to stabilize and the U.S. trade balance is improving.
“The Europeans are still holding things back a little bit,” Stead said. “But things are looking very, very good, a lot better than they were before. You should take comfort that things are on the right track.”
Among issues Stead identified that could derail the economic recovery is an increase in interest rates.
“Over time, we are seeing interest rates starting to move higher,” Stead said. “The Fed is buying less, and it has an impact on borrowing cost. And if your cost to finance things goes too high, too fast, it puts a damper on consumption, which puts a damper on economic growth.
“If you have debt, I strongly urge you to hedge that bet,” Stead said. “Work out a schedule on how you can hedge that interest-rate risk.”
Stead also identified a decline in the workforce as an issue of concern to the U.S. economic recovery.
“This is something that troubles us,” Stead said, “because when you see people leaving the labor force, the question is, why are they leaving? Is it because baby boomers are aging? Is it because they are just giving up hope? Is it because there is nothing else to do and they would rather stay at home?
“That is something that should be taken into consideration,” he said. “If more people were looking for work, clearly the unemployment rate would be higher than the 6.8 percent.
“I would rather see real meaningful job growth of 200,000 or 300,000 jobs a month,” he said. “That would be way better than where we are now.”
Among positive factors affecting the economy is an improvement in the U.S. trade balance brought on by a boom in the energy sector.
“The fracking industry is creating a boom in the energy world, and is allowing us to become much more self-sufficient in energy, and it is expected to continue,” Stead said.
Also, Stead said, a good corn crop last year helped lower feed costs for beef and dairy producers.
“The net is it is looking very positive for continued improvement,” he said of the economy.
Stead also spoke about the costs of Medicare, Social Security and health, unemployment and military spending on the U.S. economy. Those sectors make up 75 percent of the spending in President Obama’s proposed 2014 budget.
“Everything else, with one exception, and that is interest on debt, is sort of irrelevant,” Stead said.
“What matters is somebody has to come to grips with Medicare, Social Security and military spending in order for there to be a really meaningful negotiation,” he said.
“This is why politicians don’t want to get on the national stage and have debates about this, because nobody wants to be the guy who cuts grandma’s Medicare,” Stead said.