Donald Trump’s plans for the U.S. economy have already led to home prices rising, and that’s having a great impact according to University of North Carolina Charlotte economics professor John Connaughton.
Connaughton delivered his remarks about the economy as part of the 2017 CoreNET Global Carolinas Chapter annual economic outlook on Tuesday at the Foundation for the Carolinas in Uptown. A crowd of about 65 people attended the talk by Connaughton to hear his thoughts on what to expect in a Trump administration, and a continued economic recovery.
“Trump as new president will have a big impact on the country and the first 100 days of his administration are critical,” said Connaughton, who is professor of economics and UNCC Belk College of Business. “Most of what Obama got done over the past eight years was done in the first six months.”
Connaughton said the country was technically in the midst of an economic recovery – and lengthy one at that – despite the experiences of many in the business world and the average citizen. The problem, he said, was people’s perspective.
“Technically, from the pocket protector posse, there was a recovery and expansion that started in July 2009,” Connaughton said. “It has been the fourth longest ever with 90 months so far of expansion of the economy. The problem with people’s perspective is they all remember the one from the 1990s which was the biggest ever!”
Indeed, according to government statistics, the economic expansion in the 1990s lasted an incredible 120 months – a solid ten years worth of growth. So, Connaughton said, any economic growth pattern would pale in comparison to that long-term growth.
But Connaughton warned that there could be a real bogeyman in the economic closet – deflation.
“Through most of our history we have battled deflation, not inflation,” he said. “Deflation is scary to economists because we have tools that can battle inflation, but not much to fix deflation. The problem with deflation – like we saw in 2009 and 2010 when housing prices were dropping – is people wait to buy, wait to make a decision so that they don’t buy. And that means people lose their jobs. But now, with home prices rising, it means people decide they need to buy now instead of waiting and that is good for the economy.”
The urge to buy is also reflected in current consumer confidence being very high, he said.
“Consumer confidence is very high,” Connaughton said. “It means I’m either going to use my savings to buy something big or I’m going to take out a loan to buy it, so I need to be able afford that payment and I feel confident I can.”
Other economic factors that could affect the country’s growth in 2017 include gas prices and the federal interest rate. With regard to gas prices, Connaughton said the average of around $2 a gallon should remain the same for the next 12 months and that won’t affect the economy in too detrimental a way.
“The price has been at that point for several years now,” he said. “It is a big driver of the economy, though. A 50 cent change in gas prices takes money out of your pocket so you don’t spend it on going to the movies or out to eat or in vacation. When you do save it and have it in your picket you will spend it which is better for economic growth.”
And although Connaughton said the interest rates set by the Federal Reserve are “going the wrong way” as they increase, he didn’t expect them to increase enough to really affect the economy in 2017.
“The real problem is the 2 percent problem,” Connaughton said. “We’ve been growing at an average of 2 percent for the past decade. The difference between 2.2 and 3.5 percent doesn’t sound like a lot. But over a generation or so it can be a big impact.”
Connaughton said he didn’t have a clear cut answer to the 2 percent problem, but said that the real answer would likely involve either increasing the country’s labor force or increasing the productivity of the existing labor force – or some combination of both.
He also warned that the federal budget deficit could rise this year and may even be above $1 trillion by the year 2026. Also, he warned that banks currently have excessive reserves, hording as much as $1.8 trillion in cash which would be better used if circulated in the economy and that the nation’s current trade deficit is about $532 billion.
Still, Connaughton said he thought the economy was moving in the right direction generally and he expected 2017 to be much like 2016. Connaughton predicted North Carolina and the nation as a whole would see an increase in jobs this year with about 80,000 jobs coming to the Tarheel State and about 2 million jobs coming on the national scale.