A nationally acclaimed economist told a Billings audience Monday the United States economy is scraping bottom and the country is about to start a slow, gradual recovery.
Sung Won Sohn, executive vice president and chief economist for Wells Fargo & Co. in Minneapolis, said the economy is on a high-wire, teetering between a recession and a soft landing.
But Im an optimist. I believe we will see good news, Sohn said, during a lecture at the Sheraton Hotel Tuesday. We are expecting next years corporate profits to go up 15 to 20 percent.
If the country does slip into a recession, it would be a serious problem throughout the world, he said, because Americas economy is so powerful and pervasive.
Sohn said Montanas economy is more stable and diversified than when he started visiting during the economic bad years of the 1980s. And he suggested that cities like Billings need to find an economic strength to develop and sell to the rest of the world. Not all things to everyoneHe said successful cities focused on one industry and arent trying to be everything to everyone.
San Diego in partnership with the University of California-San Diego is trying to become the biotech leader of the world, he said.
Tucson, Ariz., is now the optical capital of the world.
Fresno, Calif., with a jobless rate four times higher than the rest of the country and a struggling agricultural economy, is specializing on developing technology to manage irrigation and drinking water.
Fresno is now developing water technology and selling it to Israel and the Middle East, he said.Finding niche is keyFinding such an economic niche or cluster is the key to raising Montanas low per capita income.
Sohn suggested that Billings could capitalize on the latest U.S. Census data that shows more retirees moving here.
Youve got your medical facilities, a low cost-of-living and wide open spaces. Life is good here, Sohn said. Maybe you can develop some clusters, perhaps medical.
The state should find its economic niche as well, he said.
As far as Im concerned, Western Montana is the Switzerland of this county, said Sohn, who travels to Montana to ski as well as for his bank. Its not only for tourists, but you can attract movie stars as well as business owners.Tailwinds helpingDespite tens of thousands of layoffs and daily bad news about corporate profits, Sohn said those economic indicators lag the stock market by about a year.
Americans who focus on the bad corporate profits are focusing on the economic equivalent of old news, he said.
If you try to predict the stock market by looking at corporate profits, then its like driving your car by looking in the rearview mirror. Sooner or later, you will have an accident, he said, adding that this second quarter should be the worst for corporate profits.
Sohn pointed to three indicators he called helpful tailwinds that will usher in better economic times: Interest rates, the federal tax cut and lower energy prices.
We have never seen this steep, precipitous decline in interest rates since the 1980s recession, Sohn said, adding that Federal Reserve Board Chairman Alan Greenspan is determined to prevent a recession.
He predicted Greenspan will cut interest rates again for the seventh time next month.
The President Bush tax cut timing was fantastic for the economy, he said, and should boost economic growth 1 percent this year.
The third favorable tailwind is lower energy prices at the pump and for natural gas. Energy savings will inject about $50 billion into American pockets for the rest of this year, or an amount roughly equivalent to the tax cut.
The sharp drop in the stock market hasnt affected Americans of average income, Sohn said, because the majority of their personal wealth is in their homes, not the stock market.
Another positive sign, Sohn said, is that the country is awash in cash.
According to the Federal Reserve Board, individual Americans are sitting on $3 trillion in cash and institutional investors have another $1 trillion.
In the economic history of the stock market, Ive never seen that much cash. Period. Even 5 percent coming back into equities could have an explosive impact on the stock market, Sohn said.
The native of Seoul, South Korea, who earned a doctorate in economics, was educated at the University of Pittsburgh and the Harvard Business School. He served as a senior economist on the Presidents Council of Economic Advisors.
Sohns talk was sponsored by The Billings Gazette, Wells Fargo and the Montana State University-Billings College of Business.Jan Falstad can be contacted at (406) 657-1306 or at email@example.com