LAS VEGAS — Though the U.S. economy is still facing a number or risks, one prominent economist says conditions are ripe for significant improvement going forward.
Mark Zandi, chief economist for Moody's Analytics, said the only missing ingredient to stronger growth is confidence.
"Businesses need to take a leap of faith and stop worrying about their cost structure and look for revenue opportunities," he told attendees of the American Credit Union Mortgage Association's annual conference here Tuesday. "In this recovery it has taken a long time for businesses to take that leap of faith. My sense is we are there. The long shadow of the recession is fading. The government shutdown is off the front page. I am quite confident growth rates will be stronger."
Of particular interest to the audience of CU mortgage professionals, Zandi said housing soon will be undersupplied as demand is outstripping the number of available homes.
On the positive side, Zandi said American businesses have never been as profitable in terms of after-tax corporate profit margin as they are now. And, he they have a "significant energy advantage" in that industrial electricity prices in the U.S. are significantly lower per megawatt hour than in Asia or Europe.
"I think this is as bright a future as I have seen," he said.
Still Risks
To be sure, there are "a lot of risks out there," according to Zandi He said many economists "tend to dismiss these risks, but I think it is important to acknowledge them."
The biggest risk factor is interest rates. As the economy improves, interest rates will have to rise. The question in this scenario, Zandi said, is can the Federal Reserve do so smoothly?
He praised Federal Reserve chairman Janet Yellen, noting she is "the right person in the right place at the right time," but expressed a concern that the Fed's exit plan will be tricky. There are trillions of dollars held outright on the Fed's balance sheet, including Treasury securities and mortgage-backed securities.
"There is a risk rates could rise more quickly than being forecast," he said, adding another potential risk is the fact the rate of growth is slow globally. "I expect Europe to continue to grow very, very modestly. My optimistic baseline forecast assumes China will resume growth after a slow period. But if I am wrong, slow growth in China reverberates across the globe."
The Chinese economy will "stumble," Zandi predicted, either later this decade or early in the next decade. "It will not be a straight line of growth for them."
Yet another risk: Zandi said the Ukraine-Russia conflict could hurt the world economy by curtailing Russian oil production.
