John Augustine sees signs of U.S. economic growth. But, like most folks, hed like to see more.
Fifth Third Banks chief market strategist says its a good time to be supplying products and services to the auto, aerospace, housing construction and domestic energy markets – where growth is above average. Meanwhile, consumers are limiting spending to autos, appliances and home renovation, he said.
Hence, the economy is very narrow, he said. It needs to broaden out in 2014.
Augustine will visit Fort Wayne at noon Friday to share his economic outlook with about 200 Fifth Third clients. Admission to the Hotel Fort Wayne event is by invitation only.
Its been a surprisingly good year for investors, he said of 2013.
Economists expected people to shift investments from bonds to stocks, but the shift came from gold to stocks instead, he said.
The price of gold has fallen about 20 percent, while the price of stocks is up 18 percent on average, he said.
Three things are holding back a significant economic recovery. Gross domestic product has been growing at about a 2 percent annual rate.
First, the federal government has cut its spending by 3 percent while increasing its tax collections by 13 percent. The cumulative effect is that about $480 billion has been taken out of the U.S. economy this year, Augustine said.
Second, income growth is still slow because people drawing paychecks have received meager raises and people with savings are earning next to nothing in interest. Wage gains are being offset by increases in health care costs, a trend that has gone on for about four years.
And, third, companies arent increasing capital spending as fast as their profits are increasing.
Companies are still sitting on cash versus reinvesting in their businesses, Augustine said.
The economy needs to maintain growth in diverse areas for a strong recovery to take hold, the Cincinnati-based economist said in a phone interview.
Augustine doesnt see inflation on the horizon, which is good news for consumers. The U.S. economy could also benefit from greater stability in Europe, which pulled itself out of recession in the second quarter, and China, which seems to be stabilizing at about 7 percent annual growth.
Another looming issue is the eventual end of the Federal Reserves quantitative easing program. Officials have been artificially propping up the stock and bond markets by buying trillions of dollars of bonds.
The program will end when Fed officials believe the economy is strong enough to survive on its own. The result, Augustine said, could be that the economy picks up speed but stock market growth lags.