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PNC Economist Shares Insight on U.S. & Global Economy

photo-JB-RetouchedOn January 28, 2015, Cherry Bekaert was pleased to welcome Bill Adams, Senior International Economist of PNC Bank, to discuss the state of the domestic and international economy. During his speaking engagement, Adams suggested that if the terms “debt ceiling,” “fiscal cliff” or “credit rating downgrades” keep you up at night, there may be some sense of relief ahead if you are willing to wait for a gradual recovery.

The monthly U.S. payroll jobs employment report is one of the key indicators on how the U.S. economy is doing. In short, it has gained some traction and is making a slow recovery. This report was also compared against the payroll employment growth and household employment growth reports. Although the U.S. labor participation rate against the percentage of available workers (aged 15-64 years) is at one of the lowest points in 30 years, it is still at a higher rate than the current population growth.

Adams also predicted that the federal long-term interest rates will be hiked up slightly in the next few years. While he did add that with the current state of remarkably low gas prices, U.S. consumers will have more disposable cash, keeping inflation lower.

The decision of OPEC to let oil prices decline has allowed Saudi Arabia to impact the global oil market, and Adams feels this puts pressure on markets with a higher oil barrel breakeven point in countries like Russia, Iran and Venezuela. This is hypothesized by Adams as a possible strategy to slow North American production and investment in the energy sector.

In Asia, China is moving from an exporter of manufactured goods to a domestic-based economy. Because of its aging population, China has a smaller supply of workforce laborers. Many of the younger population is pursuing higher education, thus creating a gap in low income workers. As demand increases, a wage increase is predicted for this segment in China. This impacts manufacturing companies in the U.S. that outsource their global production, as it will become more costly to sustain profit margins with increased labor costs.

This is advantageous for countries bordering the U.S., such as Mexico and Canada, remarked Adams. The cost of labor and transportation is marginal compared to the predicted rise in Asian workforce wages. It will also be easier to manage business in these countries due to their close proximity.

Adams also noted that India is in a better economic position over previous years. He speculates that India is coming into a period of improved growth. This is fueled by the new government looking to invest heavily in infrastructure that will stimulate the economy.

Other key international observations and predictions included that the Euro is likely to weaken further, due to aggressive asset purchase programs. This quantitative easing will result in more private equity funding, more downward trickle of capital, and an increase of corporate restructuring.

Finally, Adams predicted that funding from emerging markets to come from global resources. This is viewed as a positive indicator that the industrial and technology industries in the U.S. will still be able to obtain needed funding from venture capital and private equity.

For more information about Adams’ speech, and U.S. and global economics, please contact a member of Cherry Bekaert’s Technology & Life Sciences industry group.