From Daily Planet Staff Reports

Contrary to the so-called consensus view of economists that the United States will suffer a recession followed by several years of slow growth, economist James F. Smith predicts — conditionally — a continuing drop in gasoline prices and a faster economic resurgence.

However, the one caveat to his rosy prediction is that Americans remain frugal and cost-conscious — and avoid returning to their “prolifigate ways.”

Smith, chief economist for Parsec Financial and a professor at Western Carolina University; addressed the Ninth Annual “Asheville Metro Economy Outlook” sponsored by the Asheville Area Chamber of Commerce in the Diana Wortham Theatre in downtown Asheville on July 23.

He began his address by noting that the previous speaker, Tom Tveidt was correct in saying Asheville is unique, but then quipped, “Of course, what’s really unique about Asheville is the Biltmore Estate.”

As the crowd laughed, Smith turned more serious, noting that while Tveidt’s talk focused on the local economy, “I’m going to talk about the rest of the world and try to make you feel better about everything.”

To understand today’s world and national economies, he recommended reading — or re-reading — a book titled “Manias, Panics, and Crashes: A History of Financial Crises” (Wiley Investment Classics) by Charles P. Kindleberger. “But be sure to get the fifth edition,” which includes the latest examples, he added.

“The current mess began on Aug. 9, 2007,” when a very large French bank decided not to allow people to get their money bank,” triggering a run on the bank, fanning the flames in other similar scenarios around the world,” Smith said.

“We are in a panic” in the United States, currently involving Fannie Mae and Freddie Mac. (Federal National Mortgage Association, doing business as Fannie Mae, buys and holds mortgages and is the largest U.S. morgage buyer. The Federal Home Loan Mortgage Corporation, commonly known as Freddie Mac, is a stockholder-owned corporation authorized to make loans and loan guarantees.)

Moreover, “it’s an around-the-world panic,” Smith said.

“Despite oil prices down by about $20 per barrel — it’s not too shabby ... Another $50 per barrel would be nice ... We’ll be OK as long as we don’t go back to our prolifigate ways.”

Speaking of most other economists, Smith asserted, “The consensus forecast is slow growth, way below potential, for the next few years.

“I disagree with the consensus forecast.” Instead, he predicts a drop in gasoline prices and strong growth later this year or early next year.

The last recession occurred in 2001, “and, without (the) 9/11 (tragedy), there never would have been a recession,” Smith said. “As it was, it was the mildest (U.S.) recession ever recorded.

The real gross domestic product increased 2.5 percent in the last year, which he termed “not great, but not lousy.” However, the rate was 0.6 percent in the fourth quarter of last year and 0.9 percent in the first quarter of this year.

“It’ll be at least triple that for this quarter,” Smith said.

He also predicted that real disposable income, which is what people spend for discretionary purchase, would show a sizeable increase.

“Gasoline is about to go down significantly, which, I think, will make everybody very happy.”

He then noted that “in 1980, we had a disasterous experience with Jimmy Carter” as president, tightening credit polices to the point that home ownership did not reach pre-1980 levels until 1987.

Smith predicted that the U.S. economy will hit a bottom in “the next month or two” — and that steady improvement will follow.

In speaking of real residential investment, he said it contributes to real GDP changes. To that end, he said national data shows homebuilders “are more pessimistic” than almost anyone, with their optimism rating a paltry 16 on a scale of one to 100.

The homebuilding downturn is “probably about maxed out and (then) we’ll get some good news.”

As for the industrial production index, it is up 0.3 of 1 percent.

“The global picture of jobs in manufacturing” shows it is “declining dramatically.” Specifically, “only lost 13 million manufacturing jobs (were lost) in the United States in the last two months — the lowest since 1950.”
In manufacting, he said, “It’s all about productivity,” noting the pattern cited in Tveidt’s talk wherein the more manufacturing jobs are cut, the more the average wage increases.

Next, Smith said that 110 years ago, 95 percent of the labor force in the U.S. was employed in agriculture. “Today, it’s 2 percent” of the labor force, while the sector continues to produce enough food to feed the U.S. — and much of the world.

Smith triggered laugher from the audience when he quipped, “Now, we pay them (farmers) not to grow anything — except for the ethanol program.”

As for retail sales and food services, he said, “In 1952, we were engaged in a war that looked like it would never end” — a scenario that he likened to today’s situation.

“The good news is people tell you they feel miserable, so they go out and shop,” he said with a grin. He cited the American ethic of “Shop till you drop.”

He then noted the solidity of the biggest asset of most Americans — their homes, which are valued at $20 trillion. He added that 37 percent of owner-occupied homes in the U.S. are owned “free and clear.”
As for Asheville, he called it “one of the places where the houses’ values only go up.”

In reference to the consensus forecast of most other economists, Smith said, “If the forecast comes true, whomever is elected will be thrown out of office,” if the economy’s growth rate proves to be inadequate.
Over the past 120 years, the U.S. has averaged 3.1 percent annual growth.