Private sector will drive US rebound, economists say

The U.S. economy is on track to recovery, if government gets out of the way and the coronavirus is thwarted.

That’s an overall assessment of economists Thursday in a virtual conference sponsored by Union Bank. The discussion was moderated by Union Bank’s Steve Sherline, a director of the bank’s wealth management division.

One economist cautioned about the dangers of mounting public debt.

“The reality is, we don’t need this much stimulus,” said Christopher Thornberg, who has served on the advisory board of Wall Street hedge fund Paulson & Co. since 2006, among other lengthy accolades.

Thornberg admitted in his presentation titled “The COVID Recession: Where Next” that times are tough. But they could get worse if Congress keeps piling on debt that our future generations will inherit. The founding partner of Beacon Economics took aim at proposals for another stimulus plan on top of the $2.2 trillion already doled out in the CARES Act because he’s concerned about the long-term effect of debt.

“Excessive government intervention” may result in high inflation in which prices go up when the value of money declines.

“The risk is the highest than it’s been in 20 years,” he said.

“Terrifying, almost immoral” government spending bailouts, “could be planting a seed that may lead to the next true recession,” he said.

Thornberg, formerly an economist with the UCLA Anderson Forecast, also criticized economists who made dire predictions of unemployment levels quadrupling at the start of the pandemic earlier this year. They now hover around 7% nationally.

Such false assumptions only serve as a self-fulfilling prophecy since those predictions go public and, therefore, lead to “incredibly pessimistic” Fed policies.

“How could forecasters be so wrong? Their dismal forecasts added to our problems,” he said, while labeling the latest economic condition as a mild recession opposed to the Great Recession that wreaked havoc over a decade ago.

While at Paulson & Co., Thornberg predicted early on the subprime mortgage market crash of 2007, which was followed by a global recession. During that time, he was the chief economic adviser to the California State Controller’s Office. He also has spoken at the Business Journal and other North Bay business events over the years.

Americans are in a much different situation this time, he declares.

“It has bounced back ferociously. The housing market is incredibly cyclical. We could come out of this with one of the strongest markets,” he said.

“As severe as this is, as tragic as this is, it’s like a natural disaster. We’ll bounce back,” he said, indicating the economic trough hit in April when shelter-in-place orders were enacted.

“What drives the rebound is spending,” he said, further admitting that’s “well below” pre-pandemic days, but consumers are still buying goods. They just changed their buying behavior.

“They said: ‘We can’t go to a restaurant. Let’s go buy a camper,’” he said.

Indeed, numerous reports have come out since March about unique buying targets for consumers ranging from pools and yard games to boats and bicycles.

Taking a beating were airlines and movie producers as some examples of industries that haven’t fared as well, he mentioned. Still, Thornberg remained confident that innovators across the country will learn to re-evaluate, retool and reinvent the next best widget and service.

Creating jobs is Job 1

“Jobs are the biggest laggard. But as dramatic as losing a phenomenal number of jobs, the entire economy isn’t suffering. Many will go bankrupt, but business applications have exploded in California,” he said, referring to a surge of interest among entrepreneurs to open new businesses.

The tumultuous gap between those who have thrived and those struggling he refers to as the “winner-or-loser economy.”

Much of the government stimulus money left unspent ended up in individual bank accounts.

“They’re not spending it out or not going on vacation, but this money will be spent once the pandemic is under control,” he said.

Housing is propping up California’s economy

For the most part, the other panelists agreed with Thornberg’s outlook.

UCLA Anderson Forecast economist Leila Bengali concurred with the reading the housing market remains propped up, despite the crisis. She reminded the listeners the strength is driven by supply and demand — especially in property-rich California.

Bengali said the housing market demand has shifted from the cities to more rural areas for prospective homeowners “to perhaps have more space” given the huge magnitude of remote work. The California Association of Realtors has shown sales of homes valued above $500,000 have shot up.

With that, another trend is showing dwellers more willing to buy than rent. For instance, rents have fallen by 6% in San Francisco alone, she said, citing Zillow figures.

The troublesome area in need of attention lies in the tourism industry, in particular as it relates to international travel.

“The leisure market is getting hit really hard,” she said, while also pointing out consequences for driving destinations. She listed double-digit percentage drops in tourism spending in the Wine Country, in particular.

Traveling into the future

Todd Lowenstein, a managing director and equity strategy executive of Union Bank’s Private Bank division, has placed his faith in the resilience of American innovation.

Robotics and automation are two technological advancements to invest in.

“This is going to be a huge part of our lives going forward,” she said.

The 25-year financial services veteran defines this virus-spawned economic downturn as a “black swan” — a quasi event-driven recession that acutely fell in our laps, opposed to one that accumulated over time.

“We will get through this. Human ingenuity is going to give us the line-of-sight to the end game,” he said, further agreeing the hindrance may be too much government intervention.

“When the pendulum swings, it usually stays there a while,” he said. “It’s like the house guest that never likes to leave.”

Union Bank operates 348 branches primarily on the West Coast.

Susan Wood covers law, cannabis, production, as well as banking and finance. For 25 years, Susan has worked for a variety of publications including the North County Times in San Diego County, Tahoe Daily Tribune and Lake Tahoe News. She graduated from Fullerton College. Reach her at 530-545-8662 or susan.wood@busjrnl.com.