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In economic ballgame, U.S. is in 'seventh inning,' strategist says

October 28, 2016

If the current U.S. economic expansion were a baseball game, we would now be in the seventh inning, according to Jeff Korzenik, chief investment strategist for Fifth Third Bank.

“When you get to inning seven, you start to see the end of the game,” Korzenik said Friday. “We’ve got innings eight and nine ahead of us still, and there’s no telling how long those innings might last. Perhaps we’ll even go into extra innings."

Korzenik made the analogy during a sobering presentation at IBJ's 2017 Economic Forecast event at the downtown Marriott Indianapolis. He touched on several factors he sees as helping the U.S. economy and perhaps staving off the next recession. However, he sought to temper optimism by noting many bearish factors working against the economy.

One bright spot, Korzenik said, is the strength of the U.S. labor market. The net number of jobs is increasing, and the national unemployment rate is 5 percent—half what it was during the Great Recession.

He also noted that the nation's labor force participation rate appears to have bottomed out and stabilized. The participation rate represents the percentage of the population that is either employed or actively seeking work. That percentage had dropped after the Great Recession, from 66.2 percent in January 2008 to as low as 62.4 percent in September 2015. 

But the rate has risen since then, and as of last month it stood at 62.9 percent.

Economic expansions often end when the labor market gets too tight, driving up wages and leading to inflation, Korzenik said.

But if labor force participation continues to increase, Korzenik said, those extra workers can ease the labor shortage.

“That would expand the life of this economic expansion by years," he said.

The question is whether those labor-market returnees—some of whom have been out of work for several years—will have the skills necessary to find new jobs.

Stepping outside of the conventional economic realm, Korzenik also mentioned drug abuse as an area of concern.

Drug addiction is a growing problem, he said, especially in Ohio and other parts of the Midwest. Prescription painkiller abuse and heroin addiction take people out of the workforce and create a host of other serious economic and social problems.

“This is the kind of thing, I think, that isn’t getting enough press,” Korzenik said. “It’s going to be an economic burden for us, and it’s a civic tragedy.”

Korzenik also touched on a number of issues relating to demographic shifts. As the millennial generation matures, he said, it will have a huge impact on the economy. The average millennial is 26 to 27 years old, and members of the generation are moving into the stage of life that typically includes career and wage growth, establishing a family and buying a home.

All of these factors will be good for the economy, Korzenik said. However, he noted, U.S. productivity has declined for three consecutive quarters due in part to the retirement of baby boomers.

In addition, global economic factors are worrisome.

In 2005, the so-called BRIC countries of Brazil, Russia, India and China were all emerging markets with strong economies. Growth rates ranged from 3.2 percent GDP growth in Brazil to 11.3 percent GDP growth in China.

By 2015, all four of those economies saw slower growth. Brazil and Russia actually saw GDP declines of 3.8 percent and 4.0 percent, respectively. 

“At a minimum, the emerging markets are no longer an engine they once were. Worst case, it’s a destabilizing factor," he said.

He also noted that economic growth in many developed countries has been relatively anemic. For example, more than half of the countries in the Eurozone posted growth of less than 2 percent in 2015, including powerhouses Germany and France.

Korzenik did, however, call India a “great bright spot,” in part because its economy is still growing. He also noted that Prime Minister Narendra Modi has successfully implemented government reforms since his election to office in 2014. This success, Korzenik said, could inspire reform movements elsewhere.

Korzenik concluded with four takeaways: continued sluggish growth; a guarded recommendation for keeping bonds in one's portfolio; some optimism for further equity growth; and an admonition to diversify investments internationally.

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