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Will the Hair Apparent” Bring a New Day of Growth or Chaos to the U.S. Economy”

Reflections from the annual Maryland Bankers Association First Friday Economic Outlook Forum for 2017 and beyond.

For the last ten years the Maryland Bankers Association has been sponsoring an economic forecasting symposium in Baltimore on the first Friday of January which brings an illustrious panel of experts together to discuss the future of the state and national economies.

I have been fortunate enough to be a guest of Rob Tuggle, the Market President at BB&T in this region over the years.  Being the political and economic junky that I am, this event has truly become a highlight of each New Year. To Rob and my friends at BB&T, I sincerely thank you.

Now on with the show!

Yes, and a show it was!  With the unexpected election of Donald Trump, this year’s event was full of more excitement and speculation than those which I have attended in the past.

This year’s impressive panel brought a very interesting and diverse perspective to the audience of Maryland bankers and their guests.

  • Anirban Basu, MA, MPP, JD, Chairman & CEO, Sage Policy Group
  • Luke Tilley, a senior economist with M&T Bank subsidiary Wilmington Trust
  • Ehiwario Efeyini, a senior research analyst at Bank of America
  • Andy Richman, director of fixed income at SunTrust Bank
  • Kartik Athreya, executive vice president and director of research for the Federal Reserve Bank of Richmond, gave prepared remarks for its president Jeffrey M. Lacker
  • Knight A. Kiplinger, Editor-in-Chief, The Kiplinger Letter, Kiplinger’s Personal Finance Magazine, and

While my notes from the gathering would easily fill a five thousand word blog post, my goal here is to give a brief overview of key takeaways.

So, here we go:

The U.S. economy has been recovering at a very gradual pace. It can now be said that going on 8 years, this is one of the slowest and longest recoveries in U.S. history.

Some jurisdictions are still not completely out of recession, as is the case for Maryland, but for places like the DC Metro area and specifically the Silver Spring to Frederick corridor things are progressing very well.

Unemployment rates have fallen below 4%, which to many economists is considered full employment. Overall the state created a net of 30,000 new jobs last year. The metropolitan DC market (including some of Maryland’s most affluent counties) brought in 60,000 net new jobs in 2016.

While full employment may sound good, there is an enormous shortage of skilled U.S. workers for a variety of businesses around the country.  This can be a challenge for a growing economy.

Overall Maryland’s unemployment rate is still higher than it was pre-recession. Wages are lower, office vacancy rates are higher and home prices are still lower than pre-recession. But as the sun rises in the east, things will likely change for the better in the coming months.

U.S. Gross Domestic Product showed solid growth from a first quarter low of 0.8% and peaked at 3.5% in the 3rd quarter, but stats will likely show something less for the 4th quarter, which may bring about a total for the year of around 2%.

The trend here is very good. 

The real debate among the panelists was about where it will go from here. With the amount of debt and entitlement commitments that burdens the U.S. economy, in order to keep our head above water, GDP will have to reach more robust growth levels of 3.5% to 4% annually.

The experts in the room differed considerably about how well the new Trump administration will be able to accomplish such lofty goals. While only M&T Bank’s Luke Tilley expressed the most optimism, other seemed to feel that it was more realistic to see growth near 2.5% with occasional spurts into the low middle three percent range.  

Overall consensus was that the U.S. is in store for much better growth in 2017 than in past years.

As the Fed’s Athreya stated, when we look at economic statistics the only thing that matters is “productivity … all the rest is chicken feed.” And it is all the stimuli that Trump and the GOP on Capitol Hill are talking about that will likely make the difference.  

With everything that the new president has put on his plate for the coming year, the panel seemed to think that tax reform in the form of personal and corporate tax cuts will have the greatest impact. In the case of the latter, several of the panelists felt that the repatriation of U.S. corporation overseas dollars will be strong enough to fund the massive amount of planned infrastructure spending Trump has been talking about.

Bank of America’s Efeyini made note of the fact the U.S. is one of the very few major economies expected to grow in 2017, and is “not as positive about rest of the world” getting much of a boost from that. While the rest of the world struggles, the U.S. dollar is strong, which as Basu says, is good for U.S. citizens traveling abroad, though it’s not necessarily good for industry, because it makes our goods more expensive overseas.  

Other questions that the economists grappled with:

  • What will U.S. consumers do with the found money from tax cuts? Spend it, take on more debt or save it?
  • Will business optimism extend into massive investments in plants and equipment? 2016 spending data was very disappointing.
  • Interest rates will certainly rise after a long overdue respite, but how fast is too fast and could the trailing inflationary pressures put a stop GDP growth? On the other hand if rates don’t increase enough, the possibility of a recession comes quicker.

Tilley stated emphatically that there is no way that U.S. can realistically grow out of this problem anytime soon. He said that this is long term challenge with the entitlement commitments–the aging U.S. population being one of the many ticking time bombs on the horizon.

Knight Kiplinger provided an interesting perspective about the state of our union as we enter the Trump era when he said that he has never seen anything like the uncertainty and anxiety over what will really happen with the upcoming Trump presidency … we live in interesting times — A time of great change where there are as many opportunities as there are dangers.

To conclude while Anirban Basu offered up an optimistic forecast for the next two years, his take is that with the election of Trump, the nation has bought itself another two to three years of recovery and likely a more robust period at that, but at the dawn of the 2020 election, it may be a much different story.

In a future post I will offer up some additional thoughts from Mr. Basu regarding Frederick’s economic forecast.

As members of this historically agricultural county often say, “Let’s make hay while the sun shines, folks!”

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Rocky Mackintosh, President, MacRo, Ltd., a Land and Commercial Real Estate firm based in Frederick, Maryland. He has been an active member of the Frederick, Maryland community for over four decades. He has served as chairman of the board of Frederick Memorial Hospital and as a member of the Frederick County Charter Board from 2010 to 2012.  He currently serves as chairman of the board of Frederick Mutual Insurance Company. Established in 1843, it is one of the longest enduring businesses in Frederick County.


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