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Recession Recovery Reveals Changes In Economy and Its Influences

Eugenio Alemán forecasts national, regional, and international economic trends at Wells Fargo & Co., focusing primarily on the United States, the U.S. consumer and interest rates. He is also an expert on Latin American economics, including the economies of border towns that trade with Mexico.

Alemán will bring an economist’s perspective to the panel of experts during the San Diego Business Journal’s 2014 Economic Trends event on Jan. 9 event. And he took time to answer a few questions in advance of his appearance on the panel.

Before joining Wells Fargo in 2005, he was managing director of the Latin America service at economic forecasting and consulting firm IHS. He has been an adjunct economics professor at Drexel University in Philadelphia and teaches at Queens University of Charlotte (N.C.). And in the mid-1990s, he was an economics professor and MBA program director at the Inter-American University in Puerto Rico.

Alemán’s commentary has appeared in national publications such as The Wall Street Journal, Los Angeles Times, San Francisco Chronicle, Washington Post and USA Today, as well as national and international media outlets including The Associated Press, Reuters and Bloomberg News. He has also made appearances on CNBC and in U.S. Hispanic media outlets.

Alemán has a bachelor’s degree in political science from the Universidad Del Salvador in Buenos Aires, Argentina; an MBA with a concentration in marketing from the Inter-American University; and a Master of Arts and doctorate in economics with an emphasis in economic development and international trade and finance from Florida International University.

How strong is the U.S. economy today?

The U.S. economy is finally picking up steam. The U.S. economy posted a very strong annualized growth rate in the third quarter of 2013, 4.1 percent, and the fourth quarter is expected to have been better than originally thought, driven by a relatively strong consumer. This is probably the reason why the Federal Reserve finally decided, during its monetary policy meeting in December, to start the tapering process in January 2014 by slowing down the purchase of assets by $10 billion.

Will the housing market be the engine of growth going forward?

In the past, the U.S. housing market has been the leading sector out of recessions as the Federal Reserve targeted low interest rates to jump-start the economy. However, the severe housing market crisis during the Great Recession has changed the economic growth equation, making the housing market another economic sector but not the most important engine of growth for the U.S. economy. It is, perhaps, too early to know whether the housing market will regain its importance in the U.S. economy, but it definitely will have its influence going forward.

How is the U.S. consumer doing? How about income, wealth, etc.?

The U.S. consumer continues to drive economic growth, but it has been different than in the past. Growth in consumer demand has been steady but weak since the recovery from the Great Recession. During the Great Recession, U.S. consumers increased savings out of disposable personal income and are now using those accumulated savings to keep consumption relatively high. This differs with previous recoveries in that consumers used to access credit, especially from credit cards, to increase consumption. This behavior has been absent in the current recovery. Wealth, on the other hand, has recovered handsomely, even though it is still below the pre-recession level on a per-capita basis.

What will happen to the economy when the Federal Reserve stops helping?

The important issue here is that if the Federal Reserve stops helping the economy, it will be because the economy is doing better. Thus, the reduced dependence on monetary policy will be welcome by markets and by the overall U.S. economy. Having said this, some sectors will be affected more than others. Sectors that are highly sensible to interest rates will probably be the ones that will feel the most. This includes the U.S. housing market and overall investment. However, higher interest rates will also encourage risk taking and will tend to normalize economic activity, which has been in a low-growth spell over the last several years.

What are the differences in the U.S. economy today compared with the period before the Great Recession?

One of the biggest differences is that of the lack of credit. Mortgage and consumer credit have continued to lag compared to the past, and it is affecting the speed of economic recovery. From the production side, one of the most important differences has to do with the economic sectors that are growing today versus those of the past. This has special implications for employment, which today requires workers to be more technical and educated as in previous recoveries from recession.

Can you tell us anything about the U.S. energy revolution?

One of the sectors leading the economic recovery in the U.S. is the energy sector. This has been motorized by the impressive development of the shale-fracking, natural gas-petroleum industry. According to several energy analysts, the U.S. will probably become a net exporter of energy in a decade or so, and this has to be the most impressive reversal of fortune for any industry or country in modern times.

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