PNC economist: Expect another year of moderate growth

Brian J. O'Connor
Detroit News Finance Editor

The U.S. economy isn’t in danger of tipping back into recession and should finish the year with moderate gains in jobs, economic growth and in the stock market, Stuart Hoffman, a leading national economist said Wednesday.

“We’re expecting this to be another year of moderate growth,” said Hoffman, chief economist for PNC Bank. Noting that anxiety over stocks and international trade were also being stoked by the increasingly bombastic rhetoric of the U.S. presidential campaign, he added, “Some of these fears about ‘the R word’ will prove to be unfounded.”

Hoffman addressed a luncheon of the bank’s wealth management clients at the Detroit Athletic Club. Hoffman has been cited as one of the most accurate economic and interest-rate forecasters between 1988 and 2014 by the Wall Street Journal economic survey. That prompted him to joke, “I have been recognized as one of the least-inaccurate economic forecasters.”

Hoffman said he expected Metro Detroit to follow the national economic trend and with job growth of about 1 percent, or 20,000 jobs. During the last five years, he noted, Metro Detroit has come close to getting back to job levels from before the recession, and 2016 could be the year the region achieves that milestone.

“Although,” he added, “I don’t know if that’s a hollow victory, in that it’s not the same jobs and not the same people.”

Metro Detroit home prices should also continue to gain this year, but at a slower pace than the 10 percent gains of recent years, and more likely in the 7 percent to 8 percent range he said, with home sales increasing by about 4 percent. The region also will see few personal and corporate bankruptcies.

As for North American auto sales, Hoffman said PNC is predicting modest growth there, too, falling shy of the 18 million mark to hit between 17.7 million and 17.8 million, up from last year’s total of 17.5 million.

Non-auto manufacturing, however, will be weak this year, and the domestic economy will take a hit as low oil prices will continue to hurt the country’s energy sector, costing U.S. workers between 200,000 and 300,000 jobs this year.

But the resulting lower gas prices will be a big factor this year in the U.S. economy’s ability to withstand those weaknesses, as well as the slowing Chinese market and negative interest rates in Europe and Japan that will trim U.S. exports and height the value of the collar, Hoffman added. Gas prices average $2.50 a gallon last year, he noted, and between the seasonal ups and down should average about $2 a gallon during 2016.

The savings consumers saw when average gas prices dropped by $1 per gallon from 2014 to 2015 left consumers hanging on to an extra $100 billion last year, and lower prices this year would add another $50 billion for saving, debt payments and discretionary spending.

“I think that savings is a major, major positive,” Hoffman said. “That’s healthy enough to offset energy and the weak non-auto manufacturing.”

Overall, Hoffman said he expected to see the United States add 1.6 million new jobs this year, less than last year’s 2.1 million, but wages will probably grow a little faster than they have been, pushing the U.S. unemployment rate down from January’s 4.9 percent to 4.7 percent by the end of the year.

Wage growth should increase, going from about 2 percent last year to nearly 3 percent during 2016. With inflation remaining low, Hoffman said, “That’s a pretty good bump in real wages.”

As for stocks, the market will be volatile, especially because of the presidential election cycle, but Hoffman said, “I’m still cautiously optimistic.”

He added that the current bull market was marking its seventh anniversary. The weaker economy will prompt the Federal Reserve to slow down its anticipated interest rate hikes, with one quarter-point increase coming in June. Then the Fed will sit out election season and add another increase in December, Hoffman said.

On the political front, Hoffman noted Tuesday’s wins by Donald Trump and Vermont Sen. Bernie Sanders in the Michigan primary. He said he doesn’t see any coherent economic policy from Trump and fears that the programs Sanders described would raise the U.S. deficit.

“A year from now when I’m back here,” Hoffman concluded, “I’m scared to death about what my forecast will be with either a President Trump or a President Sanders.”

boconnor@detroitnews.com

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Twitter: @BrianOCTweet