Luncheon Forum: U.S. and Houston Economic Outlook by Mark Vitner

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As part of ATBC luncheon series, American Turkic Business Council in partnership with the French American Chamber of Commerce and Asian Chamber of Commerce hosted Mr. Mark Vitner, Senior Economist at Wells Fargo.

During his keynote address Mr. Vitner presented important data information of the U.S. and Houston Economic Outlook as well as his visions and forecasts.

Mr. Vitner began his speech with an overall outlook telling the audience that he expects the U.S. economy to grow only 1.7% in 2016. The strong domestic demand is helping offset the effects of the slow global growth. Looking back at last year’s federal budget, Mr. Vitner highlighted that the budget deal is providing a slight boost to economic growth. With the exception of the energy states, the state and local governments are following in their footsteps by lifting spending. When we look at the global economy, the slow growth in China is weighing down on other economies. This not only pushes the value of the dollar higher, but also presents a threat to U.S. exports and corporate earnings.

As we look at the economic growth, Mr. Vitner said the real GDP growth has been disappointing and unusually volatile. This recent volatility is due to swings in international trade and business inventories. While we face this movement in some areas, by looking at the private final domestic demand, we can easily see that it is growing more solidly and consistently.

When we talk about economic factors, one thing that usually comes to mind is its impacts on the employment situations. With solid month to month gains, Mr. Vitner emphasized that fears of recession can be put to rest. As unemployment continues to decrease, he said we are at the near of what we consider full employment. With job growth increasing across most industries, the strongest increase is happening in the construction industry followed by education and health services, professional and business services, and hospitality.

Mr. Vitner talked about the fall of optimism when it comes to small businesses because of the tight profit margins that have been rising due to competitive compensation costs and falling sales. With weakness in manufacturing and mining activities, there have been a divide between the employment data and GDP data. Another fall in optimism is in regards to the oil prices. With lower oil prices and a surge in crude oil inventories, there have been cuts in exploration activities. With countries like Iran, Russia and Saudi Arabia being adamant about not cutting back on output, it seems premature to expect the prices to rise anytime soon.

Now, when we look at the Houston and Texas market, we can easily see that Texas has been seeing employment growth slow down over the past year, with the exception of solid payroll gains in Austin and Dallas.

The Texas housing market is now in line with the pace of the U.S. growth. Residential construction activity has been picking up over the last year with an increase in single and multifamily housing permits.

Mr. Vitner said, although the oil slump has had a very meaningful impact on the local economy, especially with ones with close ties in the energy sector, Texas is still seeing a strong growth in population. But this unfortunately doesn’t mean that everyone is doing well, many manufacturers are still reporting cutbacks in employment.

When we look at the Houston housing market, Mr. Vitner emphasized that even after a solid growth period, the pace of residential building has slowed. It has become evident that the current weakness in the energy sector is spilling over to the housing market. Although the pace has slowed, home prices continue to increase in Houston even as the population remains robust.

Mr. Vitner ended his keynote address with a few critical takeaways. He included that in 2016, he expects the real GDP to rise 1.7%, with the economy being able to weather down the global economic slowdown. Mr. Vitner included that with a weakened global economy, industries closely tied together will face more trouble as a disinflationary undertow is created. His third takeaway was focusing on interest rates. Mr. Vitner said as the Federal Reserve begins to normalize interest rates, many policymakers will likely move gradually and cautiously. Looking at the housing market, Mr. Vitner emphasized that the demand for single family homes is reviving, which allows for first time home buyers to come back into the market. Finally, Mr.Vitner highlighted that the economy is definitely better for the consumers than the producers. Unfortunately, regions that are exposed to agriculture, energy, and mining and manufacturing are seeing conditions weaken.

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