Economist: Corporations, consumers remain cautious postrecession

By Liz Segrist
Published Dec. 3, 2013

Both corporations and consumers have money to spend, but they remain cautious postrecession, local economist Stephen Slifer said this morning during his annual economic outlook breakfast at the Daniel Island Club.

Despite concerns over financial stability and changes to health insurance, Slifer said corporations’ CEOs are relatively upbeat, as their companies are making record profits. But despite the increase in revenues, corporations’ investment spending remains around 2% a year.

Slifer, chief economist for Charleston-based NumberNomics and former chief U.S. economist for Lehman Brothers in New York, said CEOs are cautious to spend, in part because they are still in a recovery mindset after the recession.

Corporate executives also are uncertain about changes they will see from the Affordable Care Act and the continuous fiscal gridlock in the federal government, Slifer said.

“If my company relies on government contracts and I’m worried about a government shutdown, I won’t know if we’ll have that contract in a few months,” Slifer said to several hundred business leaders at the 2014 Economic Outlook Conference Breakfast, which the Charleston Regional Business Journal co-sponsored.

Slifer hopes corporations’ investment spending will increase from 2% up to 6.8% in 2014. As for companies looking to borrow money or refinance their debt, Slifer said now is the time.

Corporate bond rates are the lowest they’ve been in 50 years. While banks are less willing to lend to consumers for mortgages, they are eager to lend to businesses, particularly in the commercial and industrial sectors, Slifer said.

“Banks are pretty much opening their purse strings to the business world,” Slifer said.

Slifer said the stock market and consumer confidence are both on the rise going into 2014. Consumers have recently repaid huge amounts of debt, and their net worth has increased by roughly 10% from prerecession levels.

“Consumers can pick up their spending pace if they want to. ... But consumer spending remains around 2%,” said Slifer, who anticipates it increasing to 2.3% in 2014.

The quality of jobs, rather than the number of jobs, is impairing consumer confidence, he said. Income levels and the number of high-quality jobs both need to increase faster to grow consumer spending, which will contribute to economic growth.

Slifer expects the housing sector to contribute to the overall economy as well, as home sales and prices continue to increase. Home prices are up 13% year over year, Slifer said.

Inventory is running around a five-month supply, particularly for homes in the $100,000-to-$130,000 range. Slifer expects the demand for more housing to continue into 2014.

It’s estimated that roughly 1.3 million homes and apartments need to be built nationally every year to keep up with population growth. Builders are providing roughly 900,000 homes or units a year.

“We’ve fallen short this year and each of the last four years, which will continue to push home prices up,” Slifer said.

Reach Liz Segrist at 843-849-3119 or on Twitter @lizsegrist.

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