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Strategist: U.S. economy picking up pace, slowly

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Indicators show the economy is beginning to pick up its pace, but not at the rapid rate the public would prefer.

That was the message delivered Friday morning by John Augustine, chief investment strategist at Cincinnati-based Fifth Third Bank. (See video below for an interview with Augustine; the story then continues.)



“We’re used to a car going 65 [mph],” he said at IBJ’s annual Economic Forecast event. “But we’re stuck in traffic in a car going 20 right now.”

Although consumer spending is on the rise, people are buying services rather than big-ticket items such as automobiles and new homes.

About 11 million cars will be sold this year, down from an annual average of about 17 million. And only about 400,000 homes will be built, a decrease from a high of about 1.8 million in 2005.

“That’s a huge reset; that hasn’t happened since the Great Depression,” Augustine said. “The good news is the lines [charting economic indicators] aren’t going down anymore. They’re just not growing as fast as we want them to.”

In addition, the amount of goods the United States is exporting is on the rise, mainly because the dollar’s decline is helping American-made products be more competitive in the global market.

Corporate profits also are recovering at a rate that likely could stave off a double-dip recession, Augustine said. He cautioned, however, that there’s a 33-percent chance the economy falls back into recession within the next six months.

Economists say the recession officially ended in June 2009, though the majority of the public doesn’t believe it, Augustine said.

High unemployment figures continue to dampen any chances of a quick recovery. Companies may be posting stronger profits, but they doing that by cutting their work force, he said. Indiana’s unemployment rate was 10.2 percent in August, above the national rate of 9.6 percent.

Other factors continuing to challenge the economy are:

— Business closings outpace openings.

— Small-business owners remain pessimistic, according to the latest optimism index from the National Federation of Independent Business.

— Uncertainties surrounding President Obama’s tax and fiscal regulatory policy worry business owners.

— The S&P 500 Index remains volatile.

Despite some progress, the economy may not return to normal until 2017, Augustine said.

“You may not like that, but here’s our case,” he said. “The economy doesn’t go backward, it’s just not moving as fast as we’re used to.”

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