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ABC 2013: Economist sees mixed bag in the year ahead

WASHINGTON — The keynote speaker at the welcome luncheon for the American Boating Congress on Wednesday gave the industry conference good news and some not-so-good news about the economy.

"I see both strengths and challenges to the economy in the coming year," Chad Moutray, chief economist for the National Association of Manufacturers, told the capacity crowd.

Moutray began by outlining the strengths he sees, including housing, consumer spending, energy and low interest rates.

"Who would have thought housing would be a strength?" Moutray said, noting that new housing starts are up 30 percent year over year. "That’s pretty impressive, given where we were."

He said the housing market is critical to the recovery. "We really need to get housing up and running if we are to grow the macro economy," Moutray said.

Although he said consumers have been "extremely anxious" about problems such as the so-called "fiscal cliff" combination of federal spending cuts and tax increases, consumer spending was up 3.1 percent in the first quarter.

"The consumer still goes out and continues to make purchases," Moutray said.

A third pocket of strength is energy — declining prices and the increasing benefits that shale oil exploration will have on energy prices and the manufacturing sector, Moutray said. He noted a recent study that estimated lower energy costs could create "as many as 1 million additional manufacturing jobs" by 2025.

His "conservative forecast" for year-end crude oil prices has them close to the $95- to $100-a-barrel levels where they are today.

Persistently low interest rates are an obvious strength, Moutray said, comparing the typical 3.5 percent interest rate for a 30-year mortgage today with rates in 2000, which were in the 7 to 8 percent range. Lower interest rates are helping to prop up housing, consumer spending and the stock market, he said.

Among the challenges, Moutray listed exports, which he considered a strength just a few months ago. Exports have slowed, he said, because of the slump in Europe and slowing growth in China and Canada. New orders have slowed domestically and abroad. The slowdown, coupled with higher taxes, will continue to be a drag on the U.S. economy this year, he said.

Moutray said the manufacturing sector has added 500,000 jobs since the end of the recession, but hiring has "come to a screeching halt."

In terms of business confidence, Moutray said there's a split, depending on the size of the company. Larger manufacturers tend to be more positive and are spending more than small (less than 50 employees) and medium-size (50 to 499 workers) businesses.

"The long-term prognosis for manufacturing continues to be very good," he stressed. "Once we move through the second half of this year — and moving forward — the manufacturing sector is really primed for growth."

Moutray said the nation’s Gross Domestic Product grew 2.5 percent in the first quarter. He's forecasting that it will drop to 1.8 percent in the second quarter, largely because of the sequester, and that it will be between 2.3 percent and 2.4 percent for the year.

Responding to a question about the Affordable Care Act, Moutray said he expects that the impact of the new law on manufacturers and the overall economy will become clear later this year.

As an aside, he said the NAM's chief lobbyist told him, "If you aren't confused by the Affordable Care Act, you aren't reading it."

— Rich Armstrong



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