James Glassman, the senior economist for New York-based JPMorgan Chase, delivered a rosy prognostication this morning at the 12th annual economic forecast breakfast put on by the Detroit chapter of the Association for Corporate Growth.
Glassman told those at the Glen Oaks Golf & Country Club in Farmington Hills that fears of the recession returning are groundless, despite ongoing worries about European debt, and that 2012 will be a good year for Michigan, the Midwest and the U.S.
“The moon and sun are aligned,” he said. “This is going to be a better year than we’ve had so far. The bad stuff will be less bad, and the good stuff will be better.
“As an economist, I’m embarrassed when people talk about a double-dip recession. There is nothing in the data to support that,” he said.
Glassman said that by “the bad stuff,” he means troubles in Europe. But those have bottomed out and won’t pull down the world economy.
He also said that despite the stock markets having gained back most of their losses since their pre-recession highs, “you can make a case that there is still a fair amount of upside in the equity markets.”
Glassman gave five reasons for his optimism.
• The real estate market is finally poised for recovery, fueled in part by the youngest segment of the workforce, hit hardest by the recession, doing the best in recent jobs reports. They will fuel pent up demand to buy homes.
• After-tax profits by U.S. companies are at their highest level since 1947 —about 11 percent of gross domestic income, compared with the previous 65-year high of just more than 8 percent.
• Manufacturing has rebounded strongly in general, combined with the ability of the Detroit Three to generate profits on lower auto sales. “Manufacturing is the star of the Great Lakes region,” Glassman said. “The auto industry can make money at 14 million units, which is still a depressed figure. In the next two years, that will rise to 16 million units. The auto industry has good things ahead of it.”
• Recent discoveries of huge natural gas deposits nationwide not only will keep energy prices down but also will ease price pressure on a range of goods and services — and that will spread throughout the economy.
• The Federal Reserve Bank will keep interest rates at historic lows for the foreseeable future. Glassman said the Fed will keep rates low until unemployment is down to about 5 percent, which is years away.
“We are in a recovery mode, and it’s in your interest to begin thinking about expansion and investing in new projects,” he said.
Glassman said that criticism aimed at U.S. businesses for hoarding cash is unfair, despite record profits last year of $1.6 trillion. He said they have been understandably slow to invest in their companies over fears of a double-dip recession, but signs are that they have begun to spend and will continue to do so.
“The business community has switched gears from survival mode and defensive mode to offensive mode,” he said.
And he said worries over the slow pace of job recovery miss the point. All previous recessions since the Great Depression were led by the housing sector until now, he said.
“If I told you three years ago that the homebuilding business would be dead for three years, who would have thought any recovery would be possible?” he asked.
Glassman said the pace of job recovery should continue to improve. “You’ve heard the pessimism that this is the new normal?” he said. “It’s not.”