Forecast for 2016: Strategist says slow economic growth ahead

If the U.S. economy were a compact car, it would be running on just three of four cylinders.

That’s the analogy Jeff Korzenik, chief investment strategist for Fifth Third Bank, used to depict the pace of economic growth during IBJ’s 2016 Economic Forecast Wednesday morning at the Indianapolis Marriott Downtown hotel.

Since the economy bottomed in the summer of 2009, annual economic growth has only averaged 2.1 percent, Korzenik said. By comparison, since 1948, long-term growth in the U.S., factoring in periods of recession, recovery and expansion, has been roughly 3.2 percent.

“As you know, a three-cylinder car will move forward, but it’s not always the most efficient and smoothest ride,” he told the audience.

Korzenik cited several factors contributing to the slower growth rate. Among them: emerging markets falling victim to structural inefficiencies and corruption, an aging population that doesn’t spend as much, and costly government regulation.

On the bright side, consumers are fiscally healthier than they have been in decades, thanks to low interest rates that are driving record auto sales and the growing percentage of the population that’s achieved what’s considered a “good” credit score.

In addition, the economy in 2014 created the most jobs since 1999. Housing construction, whether single-family homes or apartments, continues to rebound.

Contrary to popular belief, millennials still believe owning a home is part of the American dream, Korzenik said.

“That bodes very well for the housing industry,” he said.

Ahead of the Federal Reserve’s Wednesday meeting, Korzenik predicted that it would leave short-term interest rates unchanged. But he expects at least a one-quarter percentage-point increase in the next six months to fend off wage inflation.

“We don’t know if the Fed will raise rates in December; we think it’s a coin flip,” he said. “By the end of the first quarter next year, we should see at least one rate raise.”

So what’s the outlook for next year? The U.S. is entering its sixth year of economic recovery and expansion, and Korzenik thinks there is still room for growth—just not at rates seen in past recoveries.

“It doesn’t mean there is an ending, necessarily,” he said. “But there is a shift.”