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To Snead, oil price volatility holds the greatest threat to sustaining Oklahoma’s growth. But while the state’s oil sector has trimmed its capital expenditure plans, Williams Cos. executive Evan Hanson expects the industry to maintain its current labor force.
Those positive views come in the face of the worst U.S. downturn since 1981, said Chan, who months ago declared the nation in recession since December or January. But the managing director of J.P. Morgan’s Private Wealth Management division expects the unprecedented federal reaction to this now-official recession should keep the U.S. from sinking into depression.
“My suspicion is that in the next couple of months to the middle of the year, we shall see this recession behind us,” said Chan, speaking Wednesday morning at the annual Tulsa Metro Chamber Economic Outlook Conference.
Since it often takes the National Bureau of Economic Research months to officially declare a recession, Chan considered Monday’s announcement good news. But he also saw positive signs in declining housing starts – a vital step in reducing the nation’s high inventories of homes – and continued strong exports, although slowing economies in Europe, China and the rest of the world will dampen those.
“We’re not seeing price pressure to the extent people were worrying about,” he said of commodities prices and deflation fears. “We shouldn’t worry about extremes.”
Chan considered rising federal government expenditures the greatest recovery factor – a point Hanson enhanced, pointing out 43 state governments now chart shortfalls totaling some $150 billion. Although Chan said consumer spending will dip into negative numbers this quarter, he projected the federal stimulus package could result in a retail spending turnaround as quickly as the first quarter of 2009.
“Never underestimate the American consumer,” he said. “They are the best in the world at spending above their means.”
Despite using an “accounting mirage” to disguise some of those efforts, Chan projected the U.S. Treasury will have to borrow $2 trillion to finance the recovery packages. While that may alarm fiscal conservatives, Chan considered bailouts of the automotive industry and other sectors necessary to keep unemployment from sinking further, even as some jobless benefit funds run out of steam.
“In times of emergency, the last thing you need to worry about is the fiscal situation,” he said. “You can worry about that after the economy recovers.”
Chan said the federal recovery steps may help contain the next stage in this recession, curtailed corporate capital spending. Hanson, director of state government affairs for the Tulsa natural gas giant Williams, said that is already a reality in the energy sector. Chan expects similar trends in other industries, further dragging down the nation’s gross national product.
Even with the bailout, Chan projected the 2009 unemployment rate could rise to 6.5 or 8.5 percent, paralleling Snead’s national expectations of 3.1 million job losses through the downturn. But Chan said such jobless rates pale against the adjusted 22.9-percent Great Depression heights of 1932.
“I’ve heard that even the U.S. Postal Service is laying off people,” said Chan, his smile foreshadowing the audience laughter to come. “And I just thought, the post office laying off people at Christmas may not be that good an idea.”
His talk bolstered Snead’s previous forecast that Oklahoma would generally continue to chart economic growth in 2009, although at lower levels than this year. The director of the OSU Spears School of Business Center for Applied Economic Research expects Oklahoma’s 1-percent job growth and 5-percent retail sales growth, both among the nation’s highest this year, to help sustain the Sooner State if energy futures maintain a growth-level threshold of $45 to $50 a barrel for oil, $5 to $6 per thousand cubic feet for natural gas.
At those levels, Snead expects the state’s economic momentum to keep it from falling off the cliff, with Tulsa enjoying similar growth to Oklahoma City once data issues become resolved. While state job growth would come to a halt in 2009, boosting unemployment to 4.9 percent, he foresees 3.1-percent growth in personal incomes and continued retail sales and housing price strength.
“It will be a strong year given the national conditions,” said Snead.
But he could not quite match Chan’s optimism, calling the national economic scene “ugly.”
“I see no feasible way these conditions can unwind in less than six months,” Snead said of the U.S. economic landscape. “This is what you call a serious slowdown.”
If his projections hold true, Chan’s turnaround forecast could catch the U.S. entering a recovery mode as Europe and other parts of the world slide into recession. In part that reflects a little-discussed truth – as bad as the U.S. housing bubble was, Chan said housing inflation reached greater extremes in Ireland, Spain, France, the United Kingdom, and other parts of the world.
But he doubted such factors would diminish federal recovery efforts to end the credit crisis and revive the economy, which he expects to see bear fruit within six to nine months.
“I am totally convinced everything they have done will help,” he said of plans enacted or under development with the past and coming administrations. “They are going to work. Already we are seeing some progress.”
When will the stock market improve?
TULSA – For those worried about their investments, J.P. Morgan chief economist Anthony Chan outlined three signposts to watch for in marking a Wall Street turnaround: high-yield spreads, increased credit market issuance and rising commercial loans. Since equity markets usually turn around at a recession’s halfway point, he expects investors could see these signs – and upward movement in the Dow Jones industrials – early next year.
Being in the market before that upturn is vital, he said, citing statistics showing a dramatic decline in investor returns from just a few days’ absence in catching that elusive turnaround point. For that reason and others, Chan had this advice for those considering selling their holdings: “Absolutely not.”
“You never make money selling at the lowest price and buying at the highest price,” he said, drawing laughter from Wednesday’s Tulsa Metro Chamber audience. “Absolutely not.” |
