“Living With Low Growth”

I recently attended an Economic Forecast Luncheon hosted by the Middletown Chamber of Commerce featuring guest speaker Alfred Shepard, Senior Vice President, Chief Investment Officer, First Financial Bank. The topic of Shepard’s speech was “Making Sure the Economy of 2011 and Your Organization’s Financial Plans are Aligned.” I wanted to share some of the main points of his excellent speech:


State of the Economy:

• Economic recovery is on a very low growth trajectory with little margin for error

• Other global economies are in a similar situation…Examples include the euro and dollar as governments are pushing the currency value down and trying to hedge inflation by doing so

• Current federal actions are dictating market results

2010 Projections:

• 1.) Consumer spending will be up

• 2.) Commercial real estate construction will be down

• 3.) Residential real estate construction will likely be up

• 4.) Government spending after the election should flat line down

• 5.) Net exports will be slightly up

These fundamentals affect how the government will forecast the economy.

The U.S. Economy in 2011:

• Consumer spending will show slow growth

• Residential real estate construction will show slow growth

• Business equipment spending will show slower growth

• Commercial real estate construction will show renewed growth

• Government spending will decline

• Net exports can go marginally up or down

Positive Factors:

• Businesses have adjusted to this environment with high margins, high cash values, and rebounding earnings

• Resiliency

• Some stocks have gone up more than usual

Negative Factors:

• Businesses have adjusted to this environment with lower spending, lower investments, and lower job growth

• Businesses have become very dependent on federal actions

• Very low margin for error

Why This Recovery is Different:

• Both consumers and businesses are de-leveraging.

• We are an older country demographically.

• We should look toward countries such as China, Asia, and India to see which way the recovery might be headed. This is the key driver for the investment markets.

Consumer Spending Changes Drive Our Economy’s:

• Income growth

• Wealth

• Borrowing

Expectations Remain Low:

• Lagging factor

• The loss of jobs is still present

• Net job growth may not come until mid 2011

• It could take 20-25 years to return to double digit growth

Likely Actions from New Congress:

• Some tax cuts extended (but NOT all)

• Limited new spending

• New tax credits for business and equipment investing

We must, as a country teetering on a double dip recession, NOT panic! We need to let time heal our economy and come to an agreement that sending out $800 checks to people does nothing but hurt our economic situation and drive up our national deficit. It is important that we remain conservative in our investing.


- Speech by Alfred Shepard, Senior Vice President, Chief Investment Officer, First Financial Bank