Chamber speaker: Economic recovery will be sluggish Latest Business News

Chamber speaker: Economic recovery will be sluggish

15 January, 2010

John Strickler/The Mercury National Penn Investors Trust Co.’s James D. King speaks about the economic outlook at Thursday’s TriCounty Area Chamber of Commerce breakfast meeting at Spring Hollow Golf Club.

mkaras@pottsmerc.com

SPRING CITY — The painful memory of the country’s economic woes will help consumers continue to pay down debt and hold spending in check in 2010, according to James D. King, president and chief investment officer of National Penn Investors Trust Co.

King was the featured speaker at the TriCounty Area Chamber of Commerce “Economic Forecast” membership breakfast Thursday at Spring Hollow Golf Club.

He told the 200 or so chamber members gathered that he “recommends a bottle of cabernet when you go back and look at all the terrible things that happened” in the recent economic past.

Following the bottoming out of the stock market on March 9, 2009, the U.S. economy entered into a time of stability, during which “stock prices have recovered sharply,” King said.

“The market is a very efficient animal. When the markets hit their lows on March 9, it was for very good reasons. When we worked through those troubles, the environment changed,” he said.

Following that low point, “We saw the first signs there was going to be an exit from the problems we had,” he added.

By the end of 2009, the margin of risk dropped below the level it was before we entered into the economic crisis, King said. Additionally, the cost to borrow money dropped.

On the housing front, the new housing market bottomed out in November, he said.

“I don’t anticipate a dramatic rise in new housing sales,” King said. However, the housing market has hit a “level that we think is showing stability.”

Existing home sales, however, have dramatically increased, due in part to first-time homebuyers taking advantage of a buyer’s market.

One good thing that has come out of the recent economic instability is that consumers have been paying down debt, King said. As a result, consumer credit has decreased to 3.6 percent, compared to 15 percent in October 1993. But that’s not great news for retailers, he allowed.

“The consumer drives about 70 percent of the economy in the U.S., so it’s very important that we’re out there spending,” King said.

Retail sales excluding automobiles dropped from about 8 percent in November 1998 to 1.3 percent in November 2009, he said. But that number has improved from an “abysmal” point a year ago.”

“I attribute that to the ‘Kelly Effect’,” King said, receiving quizzical looks from the audience. “That’s when my daughter Kelly came home from Penn State and went out shopping with her mother.”

Also, new manufacturing orders are improving, productivity has been high, and corporate profits are starting to recover

nicely, King said.

While the gross domestic product — the sum of all goods and services produced in the country — is still in the negative numbers on a year-over-year basis, it’s on a positive trend compared with the last quarter, he said.

He predicted the Federal Interest Rate will likely remain at the 0.25, where the government has kept it since the end of 2008.

“We think the economy is still fragile. We think the Fed will err on the side of caution,” and not raise the rate too quickly, King said.

Unemployment remains at a high national rate of 10 percent and is not likely to drop soon, he said. However, initial jobless claims have declined a bit.

“Business owners are painfully aware of recent challenges,” King said, noting the unemployment rate may go even higher as business owners continue to take advantage of higher production levels of current employees. “As jobs get filled you could easily find additional folks to fill the openings.”

In the big picture, King said, “We do expect to continued recovery, but we think it’s going to be slow. It’s even possible the government will have to provide additional stimulus.”

Consumer spending will probably increase, but “consumers may have learned some lessons. Therefore spending increases may not be dramatic.”

King’s concerns?

“We threw a tremendous amount of money into this problem. We have to take that money out sometime,” he said of the government’s economic stimulus efforts.

He added that even though the housing market appears to be in the process of recovering, a spike in foreclosures could delay recovery further.

Nonetheless, “the recovery is real, and some factors are in play that lead us to be optimistic, but we’re not going to see robust growth for at least a few more years,” King said.

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