Perna talks economy — appearance and reality
Last week, Chief Economist of Webster Bank Dr. Nicholas Perna addressed a group of Wilton Chamber of Commerce members and guests at Marly’s Bar & Bistro for the Chamber’s 2016 annual economic forecast breakfast.
Making his 12th return as the event’s keynote speaker, Perna on Jan. 14 discussed financial landscapes, global and domestic, at both the federal and state levels.
His remarks on the global economy centered largely around China, how it differs economically from the United States, and why he believes the Chinese economy is less problematic than some U.S. media outlets make it out to be.
“What they don’t realize,” said Perna, “is that China is very different from the United States; the Chinese authorities can do anything they want.”
Perna explained that, like “terrible marksmen” who make up for their poor accuracy with more shots fired, the Chinese mitigate poor policy fallout with an “unlimited” federal reserve and the fiscal freedom to use it.
“The Chinese economic authorities are terrible marksmen — as you can see from the policies that they’ve implemented — but they have unlimited ammunition, and they’re eventually going to hit the target,” Perna said.
Some U.S. taxpayers are unhappy with the large proportion of bad loans held by domestic banks. But this isn’t China, Perna said. “China buys all the loans up; you can’t do that here. The federal reserve is constrained by statute, and the Congress is constrained by everything.”
“With China, it is what they want it to be, and if they figure out what the right thing to do is, they’ll do it. So I’m less concerned about China,” Perna said.
His greater concern is with how United States citizens inaccurately perceive this nation’s economic relationship with that foreign superpower. According to Perna, the United States has “very little” exposure to the Chinese stock market and “moderate,” at best, exposure to the Chinese economy.
What we do know, Perna said, is that the attempts of Chinese companies to “restore competitiveness” through wage increases have resulted in a devaluation of Chinese currency, making the dollar stronger and causing earnings overseas to appear weaker due to the translation effect.
“Even though we’re not directly exposed to Chinese stocks,” he said, “we are exposed to these forces, and the problem is that we tend to overreact to these things.”
U.S. stock prices are down. “That puts it in correction territory,” Perna said. “So what? We’ve been there a billion times.”
In his opinion, while the nation is not exactly “immune” to any recession caused by its stocks, the U.S. stock market “gets overrated as a driver” in general economic forecasting.
“The stock market in the United States is a poor leading indicator of recession,” Perna said. “[It] is not the economy; it is, however, a good indicator of when the economy is going to turn around.”
That brought Perna to his discussion of the U.S. economy on the whole, which he thinks has turned around, in some respects. “Right now, things are going pretty well,” he said, citing specifically post-recession job growth as “very good.”
On the other hand, the measure of gross domestic product “is not very good,” Perna continued, admitting that real GDP is the single “biggest measure of overall economy.”
The economy of Connecticut, in Perna’s opinion, is doing “OK,” too, but according to him, how you see it depends on what you’re comparing it to and how you’re comparing it.
“Despite what you may think or what you may have heard, the Connecticut economy is not doing all that badly. Compared to what? Well, compared to what it was doing before,” he said.
While Connecticut tied the nation for job growth in early post-recession 2009, the state began to lag circa 2011, Perna said. But measuring November 2015 against November 2014, Connecticut is up 27,000 jobs, 1.6% compared to 2% nationally — “not really shabby,” Perna said.
“We could be doing a lot better,” Perna admitted, but by his reasoning, that doesn’t mean the state is in poor economic shape. “I think there’s a feeling that the state is going down, and it is in some ways, but it’s not in terms of jobs.”
With General Electric relocating its headquarters from Connecticut to Boston, Perna commented briefly on the $250-billion industrial giant’s move and what that might mean for this state’s economy.
“No matter why GE left, it’s always going to be, ‘They left because of Connecticut’s taxes and budget problems,’” Perna said. “That’s the story that every state recruiter is going to tell.”
He was willing to allow that the introduction of the unitary tax, to which many are attributing GE’s move, was “bungled from the get-go,” and admitted that he couldn’t really say for sure if the mandate influenced the corporation’s decision to leave or not.
But Perna thinks otherwise. In his opinion, what corporations in Connecticut are truly worried about are the unfunded pension liabilities here, and, more particularly, what exactly is going the happen when those chickens come home to roost.
“Who’s going to be asked to pony up here?” Perna asked rhetorically, adding that it’s not just pension liabilities, but “huge” unfunded medical care liabilities that Connecticut corporations wonder and worry about.