By JOHN NORTH

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Despite the weakest recovery following a recession in more than a century, the United States economy is in pretty good shape, two nationally renowned economists said April 16 at UNC Asheville’s Lipinsky Auditorium.

David Berson and James Smith also said that, in contrast with the tepid national recovery, the Asheville Metro Statistical Area is experiencing booming growth. Their comments were made to about 300 people during the 31rd annual Economic Crystal Ball Seminar.

As for the night’s featured topic, “The Fed: When Will It Tighten?” Berson said the nation’s money supply will probably be tightened in September. The economists, as usual, spoke on a number of topics.

Berson, senior vice president and chief economist for Nationwide Insurance in Columbus, Ohio, said, “extraordinarily low unemployment claims” demonstrated a strong labor market.He added, “Lots of people still want full-time employment,” noting that the measure showing national underemployment “is still pretty high” — as is the gap between that and the traditionally used unemployment rate. Those numbers, respectively, were 10.9 percent and 5.5 percent for March.

Smith added, “if the rest of the United States looked like Asheville, the (Federal Reserve system) would’ve tightened interest rates eight months ago... However, the rest of the United States doesn’t look like Asheville....”

“We (the Asheville metro) fired the afterburners... I confess I don’t know what’s going on in Asheville” with the city’s rip-roaring economic recovery, Smith asserted. He is chief economist for Asheville-based Parsec Financial Inc., the event’s sponsor.

Opening the program, Joe Sullock, a retired UNCA economics professor and a founder of the Economic Crystal Bar Seminar, told the crowd that one of his questions is: “When is the Fed going to raise rates?”

Later, Sullock said the Fed “would raise rates when inflation becomes unacceptable.”

He added that it would be the Fed’s version of “Don’t Ask, Don’t Tell.” (The reference was borrowed from a since-repealed policy that banned discriminating against or harrassing closeted gays, lesbians and bisexuals, while barring those who were openly members of those lifestyles.)

After Sullock’s initial remarks and introductions of the two speakers, Berson and Smith each spoke for about 15 to 20 minutes. The program then wound up with a question-and-answer period spanning more than 30 minutes.

Berson began by noting, “The most important thing to know is the Fed doesn’t know any more than any other economist. They don’t — and they can’t. So when they talk in confusing terms, it’s confusing.”  (Berson has been a visiting scholar at the Federal Reserve Bank of Kansas City, an assistant professor of economics at Claremont McKenna College and Claremont Graduate School in California, and a staff economist for the U.S. Countil of Economic Advisors.)

For the Fed to tighten sooner, rather than later, Berson said there would need to be strong economic actvity and higher inflation.”

For the Fed “to tighten later than sooner,” he said there would need to be “weaker economic activity and lower inflaction.”

Berson added, “We think the Fed will tighten in September, but it could be in June. It could be after September.”

Specifically, he said signs that would prompt the Fed to tighten sooner would include stronger economic data, such as jobs, unemployment rates and capacity utilization.

He spoke of signs of “a pickup in core inflation,” noting, “if people see overall inflation is lower, they may tend to expect that all parts of inflation are lower.”

As for unemployment insurance claims, he said “this comes out every week,” but “we tend to look at the four-week average.”

As of mid April, Berson said, “We haven’t been that low for a long time. The labor market is strong because unemployment is so low. Unemployment claims are extraordinarily low. It’s a sign of a tight labor market.

“The labor market is hot. But overall usage in the economy is pretty low... Capacity utilitzation —  it’s come up a lot. That’s a huge expansion. But we’re not quite at levels that push capacity...

“The spending we lost in the first quarter of last year during the Polar Vortex in 2014” was first declared a loss, but it (economic activity) was simply delayed,” based on improvements in succeeding quarters.

For 2014, Berson said, “Growth for the year as a whole was about 3 percent... Once again, this fairly soon will indicate inflation pressures... Wage expansion, per se, is not inflationary. Perhaps it will push prices up... ”

Ultimately, he said, “the Fed would take this as an example that they need to tighten sooner, or later.”

Continuing, Berson asserted, “Real GDP (gross domestic product) growth has been very moderate — the most moderate in our history. This will push growth rates to 3 percent, and possibly above... This is keeping the Fed on the sideline.”

He noted that unemployment is down a lot. “Too much? Not enough? Where is full employment? We won’t know for a year or two — until we’ve seen what’s happened with wages.”

For the Fed to tighten later, he said, low inflation would be a factor. At the moment, Berson noted, “Inflation is pretty stable at 1.4 to 1.7 percent— it’s just up a tad. We think it will continue to rise really slowly, heading toward 2 percent. Right now that’s very uncertain.”

He also said the collapse of oil prices could slow down the Fed’s tightening. As for the price of oil, Berson said, “It’s gone up a little since we did this chart.

“We think it’s more likely the (economic) pickup around the world will push up oil demand worldwide. We expect to see oil prices at $60 per barrel by the end of the year — $10 more than today.

“We do know that a stronger dollar hurts inflation because it makes the price of things less expensive. It also means strong capital flows into whatever country.”

Berson also said, “The Fed doesn’t control many interest rates.” He then asked, “Why haven’t those gone up?”

Answering his own question, Berson said, “The most likely reason ... is we’ve had these huge capital flows coming in from abroad and buying up U.S. Treasuries.”

He added that it is very rare to have negative interest rates, but that that is happening in some countries now — and that has resulted in a flow of foreign capital into U.S. Treasuries, where there is a guaranteed positive growth rate.

In general, Berson said, “Recent economic data” that he has seen” is “much worse than market expectations...”

As for the question of “When will Fed tighten?” Berson said, I think Fed will have to wait and see... Our best guess is it will be September... The market does expect the Fed to tighten” sometime “later this year.

“But everybody thinks, by the end of the year, the Fed will have begun tightening at least one time... 

The second speaker, Smith, noted that, about a year ago, the tepid U.S. economy finally gathered steam to record an increase of 2.4 percent (in economic growth) year-over-year.

In contrast, Asheville’s metro nearly doubled at 4.4 percent — fueled by a jump in nonfarm jobs — during the same period, Smith said, citing data from the Bureau of Labor Statistics. (The Asheville metro includes four counties — Buncombe, Haywood, Henderson and Madison.)

“ The number of job openings is greater — by five times — than the number of unemployed people,” Smith said. “We could get every jobless person a job (in the Asheville metro) — and still have to import people” to fill jobs.

Continuing, Smith said, “So inflation is essentially nonexistent in the United States. So the overwhelming number of forecasters are thinking it will increase in November, possibly December. They (The Fed) will tell us. They don’t want markets to be surprised.”

Changing gears in his address, Smith then said, “I watched last year’s presentation” of this seminar. “It turned out that everything David and I said — everything we said — turned out to be accurate.” The crowd applauded.

Smith then asserted, “Most of what we see (economically) around the world is generally a mess. David was just talking about negative interest rates. The worst is in Germany — yields are negative for nine years (into the future) I don’t know how people who bought it can even be called ‘investors.’

“In Denmark, it’s gotten so bad you don’t put money in the bank... You put the money in a safe deposit box. You give it to the bank — and it’s shrinking. And they need something like our TARP (Troubled Assets Relief Program) to recapitalize the banks.

“Germany yields 8 basis points. That’s just an example of the horrible shape Europe is in. They need something like our FDIC (Federal Deposting Insurance Corporation) that can close down banks that are in trouble.”

On other issues, Smith asserted, “All of the research shows the income equality is a function of how much education a person has had,” noting that “68.4 percent of U.S. high school graduates last year enrolled in colleges — the highest amount in the world ever.” The crowd applauded.

“I found that statistic very encouraging,” Smith said. “Education (level) is highly correlated with income... It appears that that message is getting through. It also tells we have enormous capacity for handling that... The Baby Boom changed everything. We have the capacity to handle things in higher education....

“Our mutual friend John Sylvia, of Wells Fargo in Charlotte,” recently pointed out that, in 13 or the last 25 years, the first quarter was the weakest quarter of the year.

“This year (yet another weak first quarter) will make that figure go to 14 of 26. It will be very weak. Nobody’s expecting it to be negative Last year was a negative 2.1 percent... There’s only been one other expansion — in the history of quarterly data — when we had two negative quarters and we didn’t have a recession... We’ve had many one negative quarters....”

On a bright note, Smith asserted, “I will reiterate a piece of news people don’t think about that was true a year ago and is true today — as lousy as the world looks, the U.S. continues to grow.”

Regarding fears that China’s economy is going to tank, he said, “Every other country in the world would kill for one 7 percent quarter,” as is China’s recent attainment. Recently in the world, Smith noted, “Two-thirds of growth has come from Chine — and one-third from the United States....

“If you want to worry a little bit, I’m pretty sure we’re closer to the next recession than we are to the last recession. Two months from today, we will hit the first day of the seventh year of this economic expansion... We’re way beyond an average expansion. The longest — March 1991 to March 2001 — was 10 years or 120 months.”

Further, Smith said, “I don’t think there’s another recession until 2021. Why? Because, as David told you, this is the slowest expansion since the beginning of the 20th century... The consensus of the report was we finally get 3 percent growth this year,” he said, noting that the forecast has been adjusted, so “now we get 2.7 percent.”

Smith added, “You can always tell when a recession is coming — when the Fed has tightened enough by slowing the growth of the money supply.... Seventeen times since 1901, short-term interest rates have risen above long-term interest rates... Once in a while, it’s cheaper to borrow ‘long.’

“Whenever you see that, its called an inverted yield curve. Seventeen times since 1901 — and 17 times we had a recession. So when you see an inverted yield curve, we will be in a recession within at least a year.”

For now, “The (U.S. economic) outlook is good,” Smith concluded. “It could be better. Employment is growing. Wealth is at record levels. And things are even better in Asheville than almost anywhere else. I don’t know what else you could ask for.”