More Economic Surprises in 2013

03/27/2013 8:30 am EST

Focus: MARKETS

Ed Finn

Editor and President, Barron's

The US economy could recover faster than most experts are claiming, to the point where we have solid real GDP growth without stimulus this year or next, says Ed Finn.

I’m speaking with Ed Finn today. He’s the President and Editor of Barron’s, and we’re talking about the economy. Hi Ed, and thanks for joining me.

Nice to see you, Nancy.

Now, as far as the economy is concerned, I mean we’re looking up. We’ve had some GDP numbers that are not as good as what maybe people expected, but we’ve seen an improvement in housing for sure. We’re seeing an improvement in employment. So what do you think the Fed is going to do next? I mean, do you think they’re going to continue the quantitative easing this year, or are we kind of done with that?

I think they’ll continue it...but I’m actually a bull on the economy. I think the economy could grow 3% this year and 3.5% next year.

That’s amazing.

It’s shocking, by some people’s measures. Nonetheless, if you take the ten most optimistic economists in a 50-economist survey, they kind of agree with that; and they see unemployment gradually coming down to 6.5%.

The reasons are, you’ve got very cheap natural gas in this country compared to other countries. That’s really going to help our manufacturing base. You also have a situation where other economies—be it Vietnam, Indonesia, China—those wages have gone up a lot. I’m not saying they’re quite competitive, but given the quality of US workers, a lot of manufacturers are moving their businesses back.

The other important thing for the economy is housing. Housing prices have been coming up. People feel more confident. A lot fewer people are underwater. They’re more happy to spend. They feel good about things when they have equity in their homes.

I think that’s only going to continue. I think the economic activity will surprise people on the upside.

Do you think that the housing prices are going to continue to grow by double digits this year, or do you think maybe 5% or 6%?

I think closer to mid-single digits as you suggest. However, there will be states that will do better.

Why?

It’s very related to the housing laws. If the housing laws are very restrictive and they make it difficult to foreclose or evict, those housing prices have moved up a lot slower than the other states. So it’s going to be a mixed bag, but I think all flags will be up, just to slightly different degrees.

Yeah, I’m hearing that in some states, like California, they’re getting multiple offers again, which we haven’t seen that in a number of years.

Well, I think it’s a good thing. I think housing prices got way ahead of themselves. A lot of people had a house that shouldn’t have had a house on economic basis, and they’ll be renters now, and that’s fine. I still think US citizens will be about 65% homeowners and 35% renters, and that’s a historical number.

Which is about normal.

Exactly, and that’s fine. But I do think prices will gradually move up, and that’s just such a weight off the economy. That’s why I think you will see job creation.

So let’s talk about employment for a moment. Our unemployment rate has really come down drastically, although if you listen to some of the media it’s like, "Oh it’s terrible, everybody’s going to go to you know where." But it seems like it’s definitely getting better.

I think it will; and if I’m right about the economy, if we get to 3.5% in 2014, I think that unemployment rate will get down to 6.5%, which is where Bernanke said he would stop loosening up. You’ll see interest rates go up, and that’ll be a sign that things are better. I think we’ll get to that magic 6.5% before the end of 2014.

Related Reading:

Betting on a Recovering Economy

This Isn't Your 1998 Rally

Move Over, Dollar, Euro, and Yen

Related Articles on MARKETS

Keyword Image
11 Reasons to Buy Microsoft
16 hours ago

For our latest recommendation, we revisit one of the world's most prominent technology companies, Mi...