Economist Predicts Steady Growth, but on a Rough Road

Aaron Hand is Managing Editor of Control Design and Industrial Networking. He joined Putman Media recently after almost 20 years covering high-tech industries, including semiconductor, photovoltaics and related manufacturing technologies. He has a B.A. in journalism from Indiana University, Bloomington, and an M.S. in journalism from the University of Illinois, Urbana-Champaign.Warning: If you want to feel good about the economy, don't get your information from Don Leavens, and don't continue reading this report. But for a bit of moderate optimism couched in warning signs that could spell trouble if we're not careful, read on.

Leavens, vice president and chief economist for NEMA, spoke at the Business Forum this morning at ABB Automation & Power World in Houston. He expressed considerable concern about the economy going forward in the United States and around most of the globe. What positive things he had to say were generally tempered with bad news. On the plus side, though, many of the negative things he had to say were tempered as well.

So, in a nutshell, don't expect much growth anytime soon, but maybe it won't be so terrible. As he summed up his discussion, he said, "I don't think I've painted a grim picture, but there are really some serious risks out there."

There are some high points now and on the horizon, to be sure. "It's a good feeling now compared to where we were just two or three years ago," Leavens said. "The U.S. economy is one of the brighter spots, surprisingly. But there are some storm clouds out there; things we're still concerned about."

The United States is seen as one of the bright spots in manufacturing. "That's good news. But if you look at industrial production, it's tapering," Leavens said. Capacity utilization, which is somewhat overstated to begin with, is still not back up to where it could be. "We've improved, but we're not back to where we were in pre-recession."

"There are a number of strong headwinds going forward, but I'm not putting a recession forecast in the cards." NEMA's Don Leavens on the global economy's mixed forecast.The housing market continues to look pretty dismal, and Leavens does not share the optimism of some other analysts in this area. "The best we can say is we've reached the trough," he said, later adding, "I remain quite pessimistic with regard to housing going into 2013."

In the meantime, the world order has changed significantly over the past four years, Leavens noted, with the recession exacerbating a number of trends that already existed. China became the second-largest economy, surging ahead of Germany and Japan and leading a trend in which the economic growth rate for developing nations exceeds that for developed nations. The financial market failure was debt-based, so it centered in the developed nations. China, India and other developing countries were not part of the "debt orgy," Leavens said. "So they don't have to rid themselves of this huge largess of bad debt."

Meanwhile, European governments are scrambling to defuse ticking sovereign-debt time bombs with austerity plans of varying degrees as the Euro zone sinks back into recession. Europe's austerity measures have focused on spending cuts rather than restructuring economies to foster faster growth. "The question going forward is how governments and central banks can remove the mammoth life support structure without triggering a second severe global recession," Leavens said.

The U.S. economy is unlikely to deteriorate to the levels in Europe, simply because the government will take the steps necessary to avoid that, Leavens predicted. "There are a number of strong headwinds going forward, but I'm not putting a recession forecast in the cards here," he said. "We'll resolve this, and the economy will keep ticking, but it's going to be a little rough."

Leavens later added, "The fiscal cliff that we face going forward will create a bumpy road. But don't expect another recession, because the government won't sign off on an austerity plan."