Using the analogy of the economy as an eight-cylinder engine, the chief economist of The PNC Financial Services Group said five cylinders are firing and three are misfiring.
The performance is much better than it was during the recession of 2007-09, said economist Stuart Hoffman.
"We have a strong economic engine," Hoffman told the Association for Corporate Growth North Florida Chapter a week ago at The River Club. PNC is based in Pittsburgh.
"We have a strong economic engine. Four to five years ago, the whole thing shut down," he told the group of financial professionals. The event drew 66 attendees.
Two of the three misfiring cylinders are the federal government and the state and local government. The third is international trade. Those three account for 25 percent of the economy and are "pretty much misfiring."
Hoffman said the federal government is in "retractionary mode," although consumers have continued spending.
"Consumer spending has held up pretty well," he said.
Among other issues, Hoffman talked about the automatic federal spending cuts, called the "sequester," that kicked in March 1 and the end of the payroll-tax deduction that effectively raises tax rates for wage earnings.
In PNC's "National Economic Outlook" report for March, Hoffman and his team wrote that the sequester has had little impact on government operations, but the effects will build the longer the sequester lasts.
PNC's forecast assumes the sequester remains in place throughout 2013.
"Although the sequester will be a drag on economic growth in 2013, the underlying fundamentals of the U.S. economy are strong enough to sustain the recovery, and the sequester will not come even close to pushing the U.S. economy back into recession," said the report.
International trade is affected by the recession in Europe. Southern Europe, especially Spain, Italy and Greece, are in recession while Northern Europe is in a milder recession. China is doing better, while Japan, whose economy is "a lost generation," might show some growth next year.
South America, Latin America and North America are doing better than Europe.
The remaining five are business investment and four consumer-focused "cylinders" — Housing, autos, nondurable spending and services spending.
"We are seeing business investment coming back," Hoffman said.
Housing is "finally coming out of its depression of 2007-11" and housing starts and prices are rising. "Housing is on its way back and prices are too," he said.
Auto production and sales are rising. Consumer spending on nondurables, such as food and clothing, is on the way up. Spending on services, "things that we do," is, too.
Hoffman said the unemployment rate eventually should return to the 6.5 percent range. The rate was below 5 percent before the recession and he said he thinks it could return to that level.
Hoffman said he calls himself "a cautiously optimistic economist," talking about an "economy that is still recovering from a near-death, near-depression experience in '08-09."
He said the economy is healing, although there still are too many people who are unemployed.
Hoffman said the economy has been recovering in 2010-11-12. "We are starting the fourth year of economic recovery," he said, explaining there have been economic growth, job growth and a rising stock market, although growth has been at a modest pace.
It should continue with "no relapse, no falling back into recession."
The Association for Corporate Growth North Florida chapter, which has 84 members, is part of a global organization founded in 1954. The chapter, which was started in 1997, includes professionals involved in middle-market corporate growth, corporate development and mergers and acquisitions.
Association for Corporate Growth members consist of private equity professionals, investment bankers, attorneys, auditors, accountants, lenders, corporate development officers, company leaders and others.
Hoffman, calling himself "one of the least inaccurate economists," said PNC expects 2 percent growth in national gross domestic product, which is the sum of all the goods and services produced in the U.S. economy.
He said that while the stock market has been hitting records, "there will be a correction, there will be drops in the market."
He said it would be limited to a 5-10 percent correction.
Hoffman told the group to beware of the loud naysayers.
"Ignore the 'vampire' economists, the 'zombie' economists," Hoffman said.
"Every time you hear good news, they suck the blood out of the economy," he said.
Returning to the engine analogy, he said to ignore those that say the economy "is going 100 mph and those that say the economy is going to clunk out."
Hoffman said he believes the Federal Reserve Board will stay the course with interest rates and keep them low until unemployment falls to 6 or 6.5 percent, which could take several years.
The Fed's Federal Open Market Committee has the statutory mandate "to foster maximum employment and price stability."
It has stated that it expects "a highly accommodative stance of monetary policy will remain appropriate" until the economic recovery strengthens.
That remains as long as the unemployment rate remains higher than 6.5 percent and as long as projected inflation for the coming year or two does not exceed the Fed's long-run goal of 2 percent by more than one-half percent.
Hoffman noted that Fed Chairman Ben Bernanke's second term as chair ends Jan. 31. If Bernanke is not appointed for a third term, Hoffman expects Vice Chair Janet Yellen would be named to the position.
Hoffman said Yellen, who would be the first woman appointed as Fed chair, is closely aligned with Bernanke and would provide continuity.
Bernanke's 14-year term as a Fed board member ends Jan. 31, 2020. Yellen's 14-yearr term on the board ends Jan. 31, 2024.
Speaking about Jacksonville, Hoffman said the recession hit Northeast Florida as hard as it did the nation. He said the area is recovering, although not as quickly as the U.S.
Hoffman said housing "bottomed out" last year in Jacksonville and the area also has seen "the bottom of the job market."
He said housing appreciation in Jacksonville might beat the national trend and the area also could experience a faster pace of job growth.
"You had a much more severe recession but things are getting more into gear," he said.
"It's still a growth economy. It's still a healing economy," he said.
"This region should mirror or outperform the U.S."
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