The economy is on the mend, but don’t expect big changes in 2012, according to Joseph Quinlan, managing director and chief market strategist for U.S. Trust, Bank of America Private Wealth Management. Quinlan made his prediction during a presentation at the recent CREW San Diego Economic Trends Forecast luncheon.
Quinlan cautions that we are still in a workout phase, and historically it takes at least five to eight years to recover from a financial crisis on the scale that was seen in 2008 and 2009. Banks will be impaired for some time, as there remains a tremendous amount of deleveraging and debt transferring from the private sector to the public sector, which will gradually need to be written off, written down and absorbed. Banks in the United States are well-capitalized, lending and doing business again, but not at the levels that were seen a decade ago, which is understandable. When you overlay the risks of Europe, U.S. banks are going down a more cautious path.
This was Quinlan’s fourth annual presentation to Commercial Real Estate Women San Diego. He is a noted author and speaker on banking and finance issues.
Federal Reserve Chairman Ben Bernanke’s recent announcement of his intent to keep interest rates low through 2014 reflects a continued effort to combat high unemployment while inflation is stable, with the hope that businesses are motivated to borrow while credit is cheap in order to invest in growth and ultimately create jobs, according to Quinlan.
When it comes to the commercial real estate market, Quinlan observed that things right now are “less bad, but we are looking at 2015-2016 before we reset and begin again. And we will get there and begin again, but we’re not out of this yet.”
The good news touted by Quinlan was that the $15 trillion U.S. economy is generating growth. Unemployment, while still high, at the time of his presentation was down to 8.5 percent overall and down to 4.3 percent for college graduates. The United States is manufacturing more and exporting more, which is needed for the larger economy on the whole to grow, reset, and create both demand and, ultimately, jobs.
Exports, according to Quinlan, are hugely important in this economy. In 2011, the United States exported about $2 trillion in goods and services. To put that in perspective, Quinlan explained that what the United States exports in one month, is greater than what 175 other countries do in one year. The United States is an exporting and manufacturing powerhouse, and this will remain a vital component in the recovery.
Regarding unemployment, Quinlan continues to emphasize that education matters, a sentiment underscored by the disparity of unemployment rates between those with a college education and those without. According to Quinlan, there are approximately 3 million jobs unfilled in the United States right now because companies cannot find labor with the right skills. On the other side, there are about 50 million unskilled workers with a high school education or less who make up about 10 percent of our labor force. The challenge remains cultivating enough skilled labor as well as making a large population of unskilled labor productive.
At the end of the day, consumers are consuming and retail sales remain relatively strong, considering the circumstances of the economy. The world of e-commerce is changing how consumers buy things, and this trend will continue to accelerate. Though the specific impacts will only become clearer as time passes, this trajectory will likely affect the commercial real estate industry as shopping habits change and work environments evolve.
Quinlan notes several wild cards to watch as we move forward in 2012 and beyond. With this being an election year, Washington leaders will likely remain negative and polarizing, continuing to divide the country and yielding gridlock.
At the same time, the nation’s deficit is at 9 percent of gross domestic product, which is worse than that of Italy and Spain, both of which are being chastised for their unsound financial situations. Europe is an extremely important factor right now in the sense that capital markets are done dealing with overleveraged, highly indebted European countries and are now paying the price.
If the European situation worsens, it will most certainly impact the U.S. economy and will slow growth. Similarly, changes in China and the instability of the Middle East remain factors that comprise the “arc of instability” that could rattle the markets and seep out confidence.
On a positive note, Quinlan reiterates that structurally, the U.S. economy is sound and that we have everything within our means to make the United States remain the most productive economy in the world. While confidence is still fragile and the recovery is slower than desired, things are on the mend. It may take several more years, but we are moving in the right direction.
Hogan is vice president of West Coast Retail Management Inc., a boutique real estate services company specializing in shopping center management and leasing. Hogan is also on the board of directors and is director of marketing communications for CREW San Diego. For more information about the organization, visit crewsandiego.org.