Raymond James (RJF) issued the views of its chief economist and other experts on Wednesday, with the aim of providing the firm’s 5,400 U.S. and overseas advisors with views on where the economic “bright spots” could be in 2012. Several analysts pointed to positive developments, with one noting that the probability of a U.S. recession is now about 20% or less.
“We obviously today are challenged by all kinds of factors, as we are every year,” said Chairman Tom James (left) in a videotaped introduction to the ‘Outlook 2012’ online presentation. “It just seems like more of them continue to be outside of the control of the individual investor, the individual investment firm, and in fact in some cases, the country itself.”
Given such complexity, it’s even “more necessary that one considers both top-down and bottom-up analysis of the world economy, world politics and the economic situations that face most of our industry groups in the United States,” continued James. “Only through that kind of evaluation can you make the best choices for yourself on the investment front.”
The overall economy “is growing more or less just enough to absorb the growth in the working-age population,” said Raymond James chief economist Scott Brown. “The unemployment rate has come down, but part of that is due to people exiting the labor force … So it’s kind of a good news/bad news [scenario]: The good news is the economy is growing; the bad news is that it’s not especially strong."
With respect to consumer spending, there’s pent-up demand and some recent wage and salary increases have been growing at a slightly faster rate in 2011 than in recent years, according to Chief Investment Officer Dave Henwood.
Plus, there are signs that consumers in the upper-income brackets “were spending a lot more than was true in recent years on cars, computers, handheld devices and other high-end merchandise,” he explained.
“Consumer-savings rates have been higher in 2011, but I expect that many felt the spirit of Christmas and spent more than they did a year ago when they were predicting the probability of a recession at 40% or higher,” said Henwood.
The probability of a recession for 2012 is now down to about 20% or less, the analyst notes. Henwood is particularly upbeat about corporate America’s ability and willingness to sustain capital expenditure outlays while increasing its hiring rates for new employees in 2012.
The U.S. economy should sustain moderate growth and avoid a recession in 2012, he shares, though the U.S. budget-deficit outlook remains grim. The worsening sovereign-debt situation in Europe could also affect U.S. economic growth.
Still, business spending should be up about 5%, Henwood says, and GDP growth in 2012 should be in the 2-3% range.
Businesses, according to Brown, are ringing up record corporate profits, which is helping to fuel fixed investment. Plus, there’s global growth that is supporting the growth of U.S. exports.
As for inflation, he is bullish on efforts by the Fed to keep it under control, and reminds investors that “large budget deficits don’t necessarily cause higher inflation,” which was the case during the Reagan years.
The main risk is the European debt situation. “If Europe goes into a recession, U.S. exporters that export into Europe are going to see weaker earnings because of that, so there’s that element. The bigger concern may be the financial repercussions,” explained Brown.
With the common currency in Europe, there has been no corresponding fiscal authority. “If they get that done, that will be an important step,” he noted.
Chief Investment Strategist Jeff Saut is more bullish and believes that the economy is going to continue to improve, though not robustly, as earnings.
“I think earnings are going to continue to come in rather surprisingly. This most recent reporting period, the S&P 500 earnings were up roughly 23% year over year. And revenues were up roughly 12% year over year,” explained Saut.
“It just feels to me like stocks are going to trade higher into the first quarter,” he shared.