On Nov. 17, 2016, Ed Hutton, associate professor of finance, invited his Finance 350: Fundamentals of Investments students and finance club members to the general session he was orating for one of the most esteemed accounting firms in the region, Lumsden & McCormick LLP at the Buffalo Marriott Niagara. His seminar was titled “What’s Next – The State of the Economy.”
Hutton began by describing the U.S. labor market as an economic indicator for the future, unemployment had declined from 10 percent to 4.8 percent in seven years. However, he did find this suspect, and provided a graph that depicted the labor force participation rate decline matching the unemployment change. There is a mismatch between labor markets and demand, skills are not being met with job availability – and this limits growth. What’s more, this would most likely lead to inflation, sprouting higher wages to entice a lackluster and unmotivated workforce and increase labor participation rates.
Hutton brought forth the reality that manufacturing jobs have disappeared, what human processes that could not be automated were sent overseas, or other opportunities were hurt by the financial crisis. But he advised not to despair, because a relaxation of a regulation, the Dodd-Frank Act, could bring back the economy.
Housing is the number one driver of the US economy. The housing markets motivate all consumer expenditures. Currently, the Dodd-Frank Act limits consumers’ abilities to secure mortgages unless their FICA score is beyond reproach or the financial institution has to hold their entire capital liquid, unable to invest it for their own purposes. Interest rates are at record lows, but the number of mortgages provided is as small as the number of disenfranchised would-be borrowers is large. The population able to meet this onerous criteria is minuscule, and the ones who can’t have settled for just renting. However, renting is not a boom to the economy.
Buying a house in the U.S. has long been viewed as the American dream, and it not only satisfies the desire to own physical capital, it drives a variety of large purchases. For example, when a person rents their abode, they do not have to purchase appliances or pay for their upkeep. They most likely live in a city with accessible public transportation and the need for a car is limited to services like Zip Car, Uber, or renting a vehicle. The owner renovates rentals andpurchases the appliances, and the upkeep is minimal as the style of most rentals is to build vertically and thus not require too much in the way of landscaping.
There are aspects of concern: future tax cuts to corporations proposed in the new president’s platform are largely unfunded, as are his promises to create large infrastructure spending, and not diminish entitlements packages will lead to a larger deficit. Currently, the bond market has become bearish as interest rates have risen, signaling a decrease in consumer confidence in debt investments. Interest rates are a harbinger of future prices increases, and increase in volatility.
Regionally speaking, Hutton ensured that New York City will with significant growth, and upstate New York is faring better. Albany, N.Y., has the strongest economy in the state, thanks to its large market of technology jobs, and the economies in Buffalo, Rochester and Ithaca are strong. Locations in New York that are of concern, according to Hutton, are Elmira and Binghamton due to the reliance on manufacturing industries for employment in these areas. Of Buffalo’s drivers of growth, there are many. Buffalo can rely on education and health increasing the economy, the financial services industry, tourism, and advanced manufacturing.
The future of the U.S. holds a horizon of deregulation in multiple industries, limits on the applications of immigrants, and a decrease in taxes. The protectionist policies in the future may lead to trade wars over the countries involved with NAFTA and the TPP. The future is not certain, and the economy is in for some changes.
Article by Kate Bell, a senior finance major at Niagara University.