CHICAGO — Debra Cafaro, chairman and CEO of Ventas Inc., the giant healthcare REIT, has observed a troubling trend in the pace of U.S. economic growth since the end of the Great Recession in June 2009. “The last four years, including this year, we’ve had this pattern where people have become more bullish on growth. Everybody thinks things are great, and it turns out to be a head fake. The growth peters out during the end of the year.”
Cafaro, whose comments came last Thursday afternoon at the 23rd NIC National Conference for the seniors housing and care industry, turned to prominent economists Austan Goolsbee and Todd Buchholz for some answers. Cafaro moderated a panel focusing on fiscal and monetary policy.
The three-day conference at the Sheraton Chicago Hotel & Towers that began Wednesday attracted 2,000 industry professionals, including owners, operators, lenders and brokers.
Goolsbee, former chairman of the Council of Economic Advisers under President Barack Obama, is now a professor at the University of Chicago. Buchholz is the former director of economic policy under George H.W. Bush.
Shape of recovery
The approximate 2 percent annual growth in U.S. gross domestic product is anything but the V-shaped recovery many Americans had hoped for, Goolsbee acknowledged. (A V-shaped recovery is a sharp downturn followed by a sharp upturn.) Still, he’s quite optimistic the U.S. will return to sustained annual economic growth of 3 to 3.5 percent or higher during the next several years. “But for the next 12 months, it’s not going to feel very good at all.”
Buchholz pointed out that the economies of several other countries are currently growing faster than the U.S. Canada’s economy is expanding 3 percent annually. South Korea and Israel are expanding at a 4.5 percent and 4 percent clip, respectively.
“I don’t think it’s an adequate excuse to say that because Europe or Japan has been growing at 1.5 percent or 2 percent, that we should be proud of the 2 percent that we’ve got, or that it’s enviable,” says Buchholz.
During the aftermath of the Great Recession, Goolsbee said the talk in Washington evolved from a V-shaped to a U-shaped to even an L-shaped recovery. “I said L is not even a shape of a recovery. Then it moved to Greek letters,” he said kiddingly.
Countries that endure a big financial crisis, such as the United States did in 2008, undergo a deleveraging process that suppresses growth in the short run, said Goolsbee. That transformation takes time to complete.
It’s instructive to compare the recession of 2008-2009 to the one in 2000-2001, emphasized Goolsbee. The crisis in 2000 was the result of the equity bubble tied to the dot-com frenzy, whereas the 2008 meltdown was the result of excessive use of leverage in the housing market. “The 2008 recession was much deeper, but it had the same feature: the bubble popped, and a lot of people had to shift away from what they were doing, and that’s tough to do.”
Goolsbee wondered aloud whether some Americans failed to learn a lesson from the housing bubble of a few short years ago. “I am nervous to see that there are some people saying, ‘Look, we are turning the corner on housing in most markets. This will lead us out.’”
Goolsbee believes the big focus should be on boosting U.S. exports and growing business services and healthcare. In short, he believes that trying to reinflate the housing bubble is “a fool’s errand.”
Tepid data
Buchholz said that U.S. housing market activity is in a bit of a lull. Single-family housing starts fell 2.2 percent in July and permits were down 1.9 percent, according to the economics group at Wells Fargo Securities LLC. New home sales also showed weakness, plunging 13.4 percent in July.
Meanwhile, the National Restaurant Association’s Restaurant Performance Index (RPI), which tracks the health of and the outlook for the industry, declined for the third consecutive month in August.
Buchholz recalled that when CNBC television journalist Maria Bartiromo asked him this past spring if the U.S. economy could continue to grow and avoid falling back into recession, he listed three products that the American consumers were willing to buy: automobiles, homes and Greek yogurt.
Greek yogurt?
“It’s true. Go to my house, open the refrigerator, and the Chobani (a brand of yogurt) just falls out,” said Buchholz, whose remarks drew much laughter from the audience. “I felt at that time in the spring that autos, homes and Greek yogurt were enough to keep the economy afloat. I’ve become a little bit more worried about the first of those two [items].”
The Fed Factor
Outgoing Federal Reserve Chairman Ben Bernanke has been the subject of much discussion in recent weeks for sending mixed signals about when the Fed might taper quantitative easing. For the time being, the Fed is staying with the status quo and expanding its balance sheet by $85 billion per month. Any pullback in quantitative easing would indicate a strengthening economy.
“I think that there was a lot of criticism of Chairman Bernanke when he did not taper,” said Cafaro. “People were confused. Business people were all in an uproar. But he is a brilliant economist who reads the data.” The economic data was weaker than first believed, said Cafaro.
The Fed’s forecast initially called for 3 percent economic growth this year and 3.5 percent in 2014, according to Goolsbee. “Bernanke was simply saying, ‘If our guys are correct, then we will commence the tapering.’ They got the data and their guys were not correct.”
Cafaro asked Goolsbee what impact the partial government shutdown will have on economic growth. “I think that it has a pretty detrimental impact,” said Goolsbee. “For however long it lasts, I think it’s cutting about three-tenths of a percent off the growth. So, if the partial government shutdown lasted for a day or two, that would be virtually nothing. If it lasted for the whole year, that’s the kind of difference between unemployment going up and unemployment coming down when you are growing as slow as we are.’
Americans' confidence in the economy has deteriorated more in the past week during the partial government shutdown than in any week since Lehman Brothers collapsed on Sept. 15, 2008, which triggered a global economic crisis. Gallup's Economic Confidence Index fell 12 points to -34 last week, the second largest weekly decline since Gallup began tracking economic confidence daily in January 2008.
That can’t possibly be good for growth, said Goolsbee. “We can’t translate that into a specific number, but it’s obviously dragging [growth] down.”
— Matt Valley