Cautiously confident

Wells Fargo investment strategist predicts continued slow US economy recovery in 2014

BY KRIS BEVILL

Jim Paulsen, chief investment strategist at Wells Capital Management, opened his remarks during a recent invite-only economic outlook luncheon in Fargo, N.D., by acknowledging the economic strength of the region. “It’s always a pleasure to come to the economic center of the U.S.,” he said, as attendees quietly laughed and nodded in agreement.

The outlook for the rest of the country, however, is not quite as rosy. Although it is certainly improved compared to recent years, he said.

Paulsen pointed out early in his speech that consumer and business confidence is currently at a five-year high and has been the primary impact on the nation’s economy over the past year. He noted that for the first three years of recovery following the Great Recession, confidence was very low and inhibited growth. That is no longer as significant a factor heading into 2014. “We still think we have problems, but we no longer believe the world is going to end,” he said.

Another positive factor emerging this year has been global growth, he said. Economies in Europe and Japan have begun to improve, unemployment is decreasing and manufacturing and housing sectors have been expanding throughout those areas of the world as well, which could produce dividends for American companies if the U.S. dollar remains low. He noted that this may already be occurring in some areas, such as manufacturing, which experienced an uptick in demand this year.

But while the outlook is cautiously optimistic, Paulsen pointed out that the economic recovery is far from over and predicted that it will be a full decade before confidence returns to pre-recession levels. For 2014, he expects the U.S. will experience a 3 percent growth rate, continued falling unemployment and a volatile stock market. He does not expect inflation to be a factor in the coming year, although he did note the potential for a mini-inflation scare if velocity (the rate at which money is spent) increases. Further, he expects velocity to be a constant economic stimulator for the next few years, he said.

One of the most significant factors owing to the slow U.S. recovery is its aging workforce, according to Paulsen. He said the available supply of labor is growing at a third of the pace it grew in the 1960s and that the U.S. labor force is simply not available to support economic growth of 5 to 8 percent.

One unknown, and potentially unprecedented, factor that is particularly impactful in the northern Plains region is energy independence. Paulsen said he expects the U.S. becoming energy independent to provide a “huge” economic stimulus, but because it has never happened before he could not address specific potential impacts.

In a regional outlook released Nov. 18, Wells Fargo economists noted that the Midwest economy is well-positioned for the coming year. The group expects oil production in the Bakken to continue driving demand for energy infrastructure investment and industrial products and to positively impact the economies of states surrounding North Dakota. The agriculture sector is expected to be “somewhat of a moderating influence” in 2014, according to the economists, who said the bumper corn crop of 2013 is likely a high-water mark for the commodity.

Kris Bevill Editor, Prairie Business 701-306-8561, kbevill@prairiebizmag.com