U.S. Economic Growth of 5% Forecast for 2004
Far from being a jobless recovery, the U.S. economy will generate over 2 million new jobs during 2004, according to predictions made by economist Mitchell J. Held at the January 22 meeting of the Long Island Capital Alliance.
This prediction surprised many of the approximately 75 LICA members and guests assembled at the elegant Garden City Hotel, in part because of the onslaught of news during the past year about the exportation or "outsourcing" of so many domestic jobs to far off foreign lands, and because job growth in the past year has been weak despite significant economic growth.
Nevertheless, Mr. Held, Managing Director in the Economic and Market Analysis Department of Citigroup Global Markets, held his ground. He bases his job-growth scenario on projected continued rapid growth in the economy during the coming year.
Mr. Held, a provocative speaker with a wide range of facts and statistics at the ready, projected real economic growth of approximately 5% with growth in the range of 3%-5% in 2005. This sustained growth will be sufficient, he said, to motivate employers to increase their new hires at a relatively rapid pace.
Although he did not discount the reality of the outsourcing of many jobs to overseas locations where wage rates are lower, Mr. Held said that the recent so-called jobless recovery was due in significant part to the reluctance of U.S. employers to hire until they saw sustained growth in the American economy. Now that a rapid-growth trend is in motion, he said, hiring should begin to accelerate.
He said that data from a number of sources indicate that manufacturing employment is likely to exhibit particularly strong gains in the year ahead.
Fiscal and Monetary Policy at "Full Tilt"
Mr. Held says the particularly strong economic growth he foresees for the next six months is due to the combined impact of very expansionary fiscal and monetary policies, which he said are moving "at full tilt." That is, big tax cuts and extremely low interest rates are combining to provide maximum impetus to U.S. economic growth. He doesn't see that scenario changing at all during the first half of 2004, and he sees interest rates rising only modestly during the second half of the year.
Furthermore, despite the rapid economic growth currently taking place, Mr. Held noted that inflation has remained low, in part because of continued rapid productivity gains in the economy, as well as continued low rates of interest. While he expects the Federal Reserve to begin raising rates a bit around mid-year 2004, he anticipates that will not be sufficient to increase inflation rates significantly, especially in view of continuing productivity gains. He expects further interest rate increases in 2005.
Mr. Held noted that personal discretionary spending rose a sharp 15% during 2003, and he expects an equal percentage gain in the coming year.
Big Gains in Capital Spending; Continued Strength in Equity Markets
He said that capital spending by U.S. businesses will remain strong this year, with double-digit growth anticipated for 2004, especially impacted by big gains in software/technology investments.
After their strong growth in 2004, the equity markets should continue strong in 2004, Mr. Held predicted. He forecast a 13%-15% gain in the S&P 500 Index this year, with a gain of less than 10% in 2005.
He said that the rapid decline in the value of the dollar against the Euro and the yen is not particularly worrisome because it has been an orderly decline - and therefore has not created turmoil in the currency markets.
In answer to a question, Mr. Held conceded that there is less concern about the large and growing federal deficit than there would have been in previous economic cycles. But he said he wasn't sure why this is so.
In answer to another question, Mr. Held said that while he is not an expert in regional economics, he believes that strong overall economic growth and big increases in national defense expenditures should both be strong positive impacts on the Long Island economy.
The Long Island Capital Alliance (LICA) aids the growth of Long Island, NY businesses by bringing them together with the providers of capital and services who could help them succeed. For information about LICA visit the website at http://www.licapital.org or call 516-785-6211.