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Nariman Behravesh is chief economist at consulting firm IHS Gobal Insight and is responsible for developing the economic outlook and risk analysis for the U.S., Europe, Japan, China, and other emerging markets.

H.L.: Will Middle East turmoil push oil prices up much above $100, and what do you predict will happen to oil prices and their effect?

N.B.: It is entirely possible for a brief period we could see oil prices rise even more that they have already. But that’s likely to be temporary unless the unrest spreads to countries like Saudi Arabia, which at this point is a low-probability event, the notion that Saudi Arabia will get sucked up into this.

If the spike in oil prices is temporary then the effect on the economy will be fairly small. By that I mean a couple of tenths of a percent on the growth rate at most.

HL: What do the February job numbers – 192,000 new nonfarm jobs, 222,000 new private sector jobs, and an 8.9 percent jobless rate – tell you about the health of the U.S. economy?

N.B.: It’s fair to say that the health of the economy is improving. This is good news, and it shows that the recovery has now broadened and spread to the jobs market. Until a little while ago, output, Gross Domestic Product, had recovered, and the job situation had not. Now that seems to have changed.

H.L.: Would job growth of 250,000 jobs a month this year be good enough to sustain an economic rebound, and if so is it likely?

N.B.: Our best guess is that we’ll probably see an average job growth averaging 200,000 a month. That’s decent, if not great, but it is enough to get the unemployment rate down on a steady basis. So if we get 200,000, I think we’ll be in decent shape.

Certainly by the end of the year, I think we’ll see the number in the low eights.

HL: How does the manufacturing sector look?

N.B.: Manufacturing has actually been adding jobs at a pretty rapid clip. This is good news. Manufacturing, unlike the rest of the economy, seems to have enjoyed a true V-shaped recovery. That is not the case elsewhere, but it seems to be the case with manufacturing.

H.L.: The Federal Reserve said it will conclude its $600 billion purchases of Treasury bonds and notes in June, which means the flood of money will suddenly stop. Can the private sector pick up the slack sufficiently to avoid a drop-off in the economy?

N.B.: The good news is that the private sector has already taken the lead in terms of growth, especially job growth. If you look at the numbers for February employment, government jobs actually shrank by 30,000, whereas private-sector jobs grew by a huge amount, 222,000. It’s fair to say that the economy can now withstand the end of end of QE2 (Quantitative Easing: the Fed’s second run of Treasury bond purchases, spending $600 billion). expanded an dshran I in the gvoenrm,ent secogtr by 30,000. Our view is that there’s enough momentum in the private sector to keep the economy gowing now.

H.L.: Around 3 million foreclosures are expected through 2012, yet the House Republicans have just eliminated four programs that would have helped homeowners. Is there any sane rationale behind that move, and what will be the economic effect?

N.B.: Housing is still struggling, and attempts by the government to boost it have backfired, in the sense that it created not a double dip, but a triple dip in the housing market. You get a temporary boost, and then it falls off, and another temporary boost and it falls off. So the government programs haven’t helped.

The good news is that housing is only about 6 percent of the economy, and as long as consumers are optimistic and spending and businesses are optimistic and spending, housing is not going to drag the economy down by very much.

H.L.: Is what appears to be a bull stock market intact, given the tailwind of rising corporate profits and headwinds of rising commodity costs and interest rates, global tensions, job and housing problems, and increasing uncertainty?

N.B.: You’ve got a sort of a push pull situation on stock prices. Certainly the economy has picked up momentum, and the stock market views that very positively. Second, the earnings picture still looks pretty good, and that too is good news for the stock market.

On the down side you’ve got rising commodity prices, which puts a squeeze on profits. That could be a drag on the stock market in the next few months.

H.L.: What about after that?

N.B.: It’s hard to tell after that. There’s a lot of debate about how long commodity prices will stay up. Our view is that oil prices and food prices will come down and are temporary. If that’s the case then the squeeze on profits will also be temporary.

H.L.: Do you expect any type of correction?

N.B.: It’s possible, but I’d guess it would be probably fairly brief, mostly because the economy is certainly doing quit well right now.

H.L.: What do you think of the radical deficit cutting the leaders in Congress want to do, and especially the massive tax cuts for the wealthy?

N.B.: I think everybody’s got to take a hit when it comes to deficit reduction. Everyone’s in favor of deficit reduction, but nobody wants their part of it. They don’t want to pay the price, but everybody’s going to have to take a hit, rich and poor. The dirty little secret in the U.S. is that not only are the taxes for the rich going to go up, but the taxes for the middle class are also going to have to go up. Nobody wants to talk about that.

It’s going to be almost impossible to balance the budget just by cutting spending. It’s important to do that, but it’s going to be very difficult to do that just on the spending side.

H.L.: What would drastic cuts do to the economy?

N.B.: In the end I don’t think they’re going to cut in such a way that it’s going to threaten the recovery. I think they’ll phase in the cuts. But clearly the deficit is a major headwind going forward.

H.L.: When do you think the economy will be robust again?

N.B.: You could argue the economy is in some respects already robust. At this point things are looking pretty good. We still have a ways to go. An unemployment rate of 8.9 percent is still quite high, but we’ve made significant progress.

Source: Nariman Behravesh: Jobless Rate to 8% by Year-End