Ted Simons: Is the U.S. economy on the verge of a major growth spurt? Some analysts are saying yes. Some are saying later this year the country could see the strongest growth in nearly a decade. Joining us now to offer his thoughts is Dennis Hoffman of ASU's W.P. Carey School of Business.
Ted Simons: Good to have you.
Dennis Hoffman: Great to be back here, Ted.
Ted Simons: The U.S. economy heading for a breakout. Are you buying this?
Dennis Hoffman: You brought PollyAnna Hoffman in here to endorse this.
Right. I was a bit more optimistic about this last year. I had talked about a distinct possibility of breakout to the up side. It really kind of looked that way to me last year, and then we faced a lot of headwinds. Some was self-inflicted with Congress. Some was attributed to the fact that the housing sector clearly cooled. Maybe that was higher interest rates with respect to the fed. Now fast-forward to this year, I guess as a forecaster, when you get a little burned it's kind of hard for me to embrace that particular outlook again. Although, I understand where those guys are coming from. Because there are pent-up demands in this economy, pent-up opportunities for a breakout to the up side. If we could kind of put some of these headwinds aside, I think it could happen.
Ted Simons: Seemed like at the end of last year, the fourth quarter, there was some pretty good growth. Things were pretty strong ending the year, you were kind of right.
Dennis Hoffman: It was -- it was okay, especially given that Congress essentially tried to shut down the federal government for the first part of the quarter there, but you know, we finished on a higher note. I think there was some optimism that we've gotten beyond this debt ceiling debate and shut down the government debate. As of today, the Obamacare debate. Who knows? Any of these could resurface at any time.
Ted Simons: And tax deductible Affordable Care Act debate, Obamacare today. There were a lot of concerns regarding job loss. Are we, A, seeing job loss in general? Sounds to me like we're seeing job growth out there.
Dennis Hoffman: Jobs are coming back, we face headwinds. What's the ACA going to do for job creation? That's been debated all along. The biggest problem with small businesses, frankly they may be concerned about taxes and regulation. But I truly believe if there were a few more folks coming in the front door or placing orders those concerns would kind of fall by the wayside. It's really lack of demand for products, lack of confidence on the part of businesses to hire and invest and put capital and people in place. Because there's just not enough buying out there.
Ted Simons: You mentioned pent-up demand. I keep mentioning weather. Throughout the U.S. the weather was just horrible this winter. I'm guessing people just can't wait to go out and buy something.
Dennis Hoffman: I was there the first week in January in western Wisconsin for the minus and miles per hour winds. Why I was there, let's not go there, but at any rate, yes. And those folks, there's just an awakening feeling. You know, it's new life, a rebirth kind of thing. And yes, they will be ready to buy some goods.
Ted Simons: We mentioned kind of finishing on a relatively strong note last year, winter kind of messing some things up this year. Does that kind of momentum from last year, along with pent-up demand, from what I've been reading some analysts are saying put those two things together. You're looking at twos and threes percentages of economic growth.
Dennis Hoffman: If we could get north of three, then I think you've got an opportunity to get inflation closer to two than it is one. I think that's just a nominal issue, but an important issue. We could use a dose of inflation in this economy. It would provide people the psychological boost, even if it's just a raise that keeps pace with inflation. My goodness, it's a raise finally. Many people have just gone without anything extra for a long time. Last year they actually felt like their wages were being caught because the FICA, the Social Security increment was put back into its normal level. That was dampening on people. So no, we have some opportunities. We really do. There could be fewer headwinds. You know, with an immigration reform policy in place, I think with corporate tax reform, those kinds of things would unfetter the economy. That would be very, very helpful. But confidence and buying is really what we need. I think people don't really understand how important it was to take on debt, to leverage up. We did it as a government and we did it as individuals. You know, from the better part of the 1970s, the 80s, the 90s, the early 2000s. This notion that all we have to do is rid ourselves of debt and things will be great, I'm sorry, the arithmetic doesn't square with that particular argument. We saw that very clear in the last years.
Ted Simons: That argument has been used over in Europe, the austerity movement to, try to get those countries back on some footing. I don't know if it's because of those measures or not, again, some of the research is showing Europe is ready for a rebound. A, is that true? And B, why?
Dennis Hoffman: Right on the precipice of collapse, you had the Irish economy and in Spain and in Italy and of course Greece, and any kind of resolution, kind of a stability there in Southern Europe, really helped improve conditions throughout the entire continent. And Germany's always been strong. I was concerned a bit this spring and remained somewhat concerned over the Ukrainian issue. Because, you know, we argue politically, what we need to put sanctions on. Sanctions are bad for the economy, they are bad for the Russian economy, which is their intent, but they are bad for both economies. Trade is what enables economies to prosper. You know, I mean, it's not just one side of this coin. You can't benefit from it.
Ted Simons: Talking about what's happening in Ukraine and Europe, it does affect America, which does affect Arizona.
Dennis Hoffman: Absolutely, absolutely. I think we're talking a lot and very progressively about opening trade and Borders with respect to Arizona and Sonora, the U.S. and Mexico. Those are very, very good moves, I think, and will help this economy prosper.
Ted Simons: I've heard the jobless rate went to 6.6, to 6.7 and more than one analyst said that's a good thing, it shows that people who might have been on the sidelines in the past think it's time to get back in the market and aren't finding things immediately.
Dennis Hoffman: The labor force is so tough to deal with, in terms of trying to measure it and what the correct measurement of the labor force is. Part of this is 10,000 a day baby boomers, people of my generation, are crossing the 65 and over line. They are leaving the labor force, some of them happily, some of them not so happy. And in dealing with this and unemployment statistics is really tough. Trying to understand what this means for the economy I think is very tough. Think about what we baby boomers did to boost this economy in the s and s. We're leaving. In the 60s we burned our draft cards. We're not going to burn our Social Security cards, Ted. We were very additive to the economy in the 70s, 80s, and 90s. Now we're going to be part of the takers.
Ted Simons: And part of the takers, Arizona, we have more than our share of folks crossing that 65-year-old line.
Dennis Hoffman: We do.
Ted Simons: We talked about trade a little bit, but other aspects of what we discussed. could Arizona be poised for one of those big growth years?
Dennis Hoffman: Yes -- you know, real estate has certainly hesitated. We saw acceleration in housing price appreciation through about the middle of last year and then it kind of flat-lined. This spring will be very important to kind of watch that. Perhaps it's a good thing we're not getting frothy in terms of real estate. Our investment segment has backed off a little bit but certainly not collapsed. Arizona is still a great place to invest in real estate. We're just changing. Part of it is the change in demographics that's taking place. It's difficult to estimate how many people want to own homes going forward. Do they want to rent versus owning homes?
Ted Simons: The milliennials. They’re not all that interested in owning anymore because they see what happens when you do own.
Dennis Hoffman: My generation wanted to own, but we're fading away.
Ted Simons: You wanted a car, too. Last question before you go here I'm reading the economy progressively faster as the year goes on is likely. Do you agree?
Dennis Hoffman: Yes, I think that is likely. The question is how fast will it progress. Will we, you know, meet some of these headwinds again? But I think it can certainly progress, and it's certainly fourth quarter, as good as you described it, I think it could have been much better had we not gone down the path that we did at the federal level at the end of the year last year. We'll have that as comparable this year. I completely agree.
Ted Simons: Good stuff, Dennis, good to have you here.
Dennis Hoffman: Great to be here, Ted.