Joseph Keating, CenterState Bank’s executive vice president, chief investment officer and head of Wealth Management, thinks there is reason to be concerned about where the U.S. economy is headed – although he does see some very encouraging signs on the nation’s economy landscape, including a housing market that shows signs of stability after years of a miserable downturn.
His biggest worries heading down the road are what’s going to happen in Washington politically, and how Europe will respond to the ongoing debt crisis. The United States, he said, could find itself facing a “fiscal cliff” that it could topple over if bad decisions are made in Congress and the White House, as well as in Europe.
“I believe we will muddle through and the market will get better,” Keating said. “The outcome is going to be decided on how do we as business people and consumers react to us facing a fiscal cliff, and how things are happening in Europe.”
On Thursday, Keating gave an Economic Update presentation on current market conditions, the outlook for the economy and investing in stocks to consistently build wealth over time. The presentation was made to members of the Haines City/Northeast Polk County Chamber of Commerce, during a breakfast meeting held at the First Presbyterian Church in Haines City. Keating said his view of the economy is probably similar to everyone else’s – decidedly mixed.
On the plus side, he said, are signs that the housing market, after years of falling prices and sky high unsold inventory, is shifting.
“We’re getting really close to the excesses in the housing market being reduced,” Keating said. “New home sales are really close to getting activity again.”
Housing sales are showing solid, if not spectacular, year-to-year improvements from 2011, he said.
“New home sales are up 16 percent from a year ago,” Keating said. “Typically, coming out of a recession, it should be in the 40-50 percent range. But 16 percent is better than sales falling.”
Existing home sales, another strong indicator of where the economy is headed, are also up, by 6.4 percent from 2011, he added, “and inventories are down 20 percent.”
Housing starts are up by a similar 16 percent so far this year, he added, saying “It appears to us the housing market is beginning to bottom out, which is a good thing.”
Keating also sees healing in the stock market, and said he can finally shift away from his typical advice to clients, which was do not sell because stock values had fallen so low.
Now, he said, he’s advising clients to think about investing in the stock market again.
“We said to folks, ‘Don’t sell, hang in there,’ “ Keating said. “Now there really is only one place people should be putting money in, and that’s high quality dividend bank stocks. In my opinion, that’s the only place to put money into stocks.”
Inflation will also remain low this year, he added, and consumers just got a welcome break as gas prices began falling, giving them more buying power.
“With the recent drop in oil prices, they’re down 27 percent from their high,” he said.
On the negative side, Keating said the U.S. job market has yet to recover from the devastating losses in 2008 and 2009, at the height of the recession.
“We need to continue to see healing in the labor market,” he said. “We’re still 4.5 million jobs down since the recession started, and a lot of those jobs came from residential construction. A lot of those jobs will never come back.”
Keating blamed the unwillingness of employers to start hiring again on uncertainty over the record debt and budget deficits in Washington, and the ongoing debt crisis in Europe. Businesses are unwilling to make serious investments in hiring new workers until they have a better sense of how the debt here and abroad will impact the overall economy.
“The federal debt will grow by $5 trillion dollars in the years (President) Obama was in office,” Keating said. “It’s just astronomical.”
Democrats control the White House and the U.S. Senate, while Republicans have a majority in the U.S. House of Representatives, and gridlock has been a key term for the past year, as both parties struggle to find ways to compromise on spending and budget cutting issues, Keating said.
That includes the need to extend tax cuts that were enacted under former President George W. Bush, and the fact that the universal health care law passed by Congress in 2010 includes a tax on investment income to help finance its reforms.
“If nothing changes between now and December 31, the (Bush) tax cuts will be reversed,” Keating said. “And there will be a 3 percent tax on investment income, thanks to ObamaCare. Taken together, that’s about 3 to 3.5 percent of GDP (Gross Domestic Product.) If we take that out of GDP, we could fall back into a recession.”
As spending continues to rise in Washington, he added, “We’re going to have to raise the debt ceiling again sometime in the 3rd or fourth quarter of the year, and we all know how much fun that was last year.”
With worries like this, Keating said, the business community remains in something of a holding pattern.
“It’s a good argument for term limits, isn’t it?” he said.
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