At the Association for Corporate Growth New York’s recent monthly meeting in Tarrytown, Neal M. Soss, managing director and chief economist for Credit Suisse, spoke of national and international trends in 2013 and beyond.
“We are capable of thriving in any environment, but you’ve got to accept the environment for what it is,” said Soss. He opined that Europe’s survival of its debt crisis and improved exports in Asia were all good economic news.
The payroll tax restoration that went into effect Jan. 1 cuts about 2 percent from the average paycheck, he noted, and as a result, “we’re going to have a slightly softer patch in retail now than we had before.” But the situation will improve by the holiday shopping season, he predicted, as consumers will have adjusted to the lost income.
Soss said the federal interest rate will likely remain near zero, which has spurred a surge in the stock market due in part to other investment options becoming unprofitable. As for public debt and underfunded obligations threatening local, state and federal budgets, he was blunt: “We are at the threshold now of austerity in budgets and fiscal drag that I suspect will be more or less a permanent feature,” he said.
Taking a European Cue
However, Soss said the cyclical economy globally and in the United States seems to be on the mend. “Where does this all start?” he asked. “It starts with Europe, which attracted a lot of attention last year. They needed to get their fiscal issues tightened up. And they did.” He cited a huge outpouring of deposits from Spain. “They didn’t leave the Euro; just Spain. The results were a recession. Europe is still tightening its budget, but less intensely. More importantly, the European Central Bank said there is nothing to worry about regarding the sustainability of the system.”
Warning that Europe is still emerging from its recession, he cautioned against expecting a boom in its future. “But what was a decline in business will now be a modest trajectory.” This has implications for large, multinational U.S. firms, which derive a large portion of their profits from international, not domestic, activities. Capital spending and industrial production went slack in the last half of 2012 due to the economic uncertainty, he said.
Soss said that in terms of policy and performance, emerging countries are in a stop-and-go stage of economic development. “That is not the best way to run a railroad,” he observed. “You want to be in a more stable environment. The poster child right now is Mexico; with a government that is very well regarded and is reform-minded. And it is good for the United States when its neighbor has his house go up in value.”
Soss pointed out that China looks like its economic growth is slowing, from a previous 10 percent to 7.5 percent. He noted last year’s concern about as to how severe the slowdown in China would be, and noted the country’s attempt to shift its economy away from dependency on exports towards domestic activities.
In conclusion, Soss discussed Japan. “In the 1980s and 1990s, people said Japan owned the future. Japan has a problem in scale, not in spirit. Fertility has collapsed in Japan and if you don’t have children, everybody gets old. And that makes it hard to get the growth in the economy that you have been accustomed to. Japan is literally shrinking. There are less Japanese [people] than a year ago.”■