Unemployment is still high, but slowly falling. Corporate balance sheets are healthy, and businesses are investing in facilities, equipment and software. And exports are surprisingly strong. Those elements should add up to robust growth, but real momentum isn't quite there.
A "slow recovery" doesn't describe it, said Eric Spiegel of Siemens, who sees performance in his own business units as decidedly mixed. Some segments are posting double-digit growth, while others are flat or down. "Anything related to [natural] gas is booming," he said, mentioning pipelines, LNG plants and chemical plants. But infrastructure, which saw lots of growth during the stimulus, is now falling off - "and that was a big source of jobs."
John Williams of the Federal Reserve Bank of San Francisco seconded the mixed report card, calling the U.S. a "two-track economy" and noting that today's growth trend is significantly slower than past recoveries. Manufacturing is a bright spot, but housing and construction are dormant. He worries that momentum is being slowed by policy uncertainty at the federal level - from the expiration of the Bush tax cuts to the prospect of another debt ceiling showdown. Despite the Fed's extraordinary moves to enhance liquidity, he sees little risk of inflation on the horizon.
Consumer sentiment may be picking up, but that doesn't impress Gary Loveman, who has a bird's eye view of the leisure and hospitality industry as head of Caesars Entertainment. "The last time I checked, when you went to the store and tried to pay with enthusiasm, you got turned away." He sees consumer spending as too "tepid" to be a real driver of recovery, with households still deleveraging, employment numbers weak and real wages not rising.
The hangover shouldn't be surprising, according to Spiegel, who reminded the audience that U.S. households lost $7 trillion in wealth during the downturn. "Some of it was paper profits, but people were spending like it was real," he said. "Consumer spending cannot be the driver this time."
What will be? Panelists agreed that the energy sector could be a candidate, especially if we position the U.S. to seriously deploy its abundant supply of natural gas. But energy policy has been a year-to-year ad hoc affair, and what we need is long-term policy certainty rather than temporary tax credits. Spiegel feels that a national clean-energy standard would not only provide clarity, but would also spur tremendous investment and job creation in clean tech. Loveman concurred, saying "We've got to get out of the position where every time we see growth, oil prices choke it off."
Another area crying out for investment and decisive action is infrastructure. Former Chicago Mayor Richard Daley acknowledged that government can't provide all the necessary funding, so public-private partnerships will have to be the answer. He pointed to Chicago's example is outsourcing and leasing infrastructure as a model. Spiegel noted that every time Siemens makes an investment, the company has to consider how it will move goods - and it has resorted to spending on roads and ports itself to ensure its ability to ship.
"Unfortunately, there's an attitude that infrastructure is a waste of money," said Daley. "We've forgotten that it's a part of economic vitality." If we don't begin rebuilding it, America will fall further and further behind.
"We're in the third inning of a nine-inning ballgame," said John Rogers Jr. of Ariel Investments, and he's optimistic about the final outcome. He believes that the stock market still isn't reflecting the underlying value in small and medium-size companies. Balance sheets are rock-solid, leading him to believe that a wave of mergers and acquisitions is coming down the pike. Rogers sees confidence building among business leaders, and was even upbeat about prospects for a housing sector recovery.
Rogers also noted that leverage is at much more modest levels in the financial system today. Financial institutions, pension funds and other investors have become much more conservative, driven by residual fear. "I think it's overdone," he said, dismissing the possibility that Europe could trigger another crisis.
There's a lot the government could do to improve business confidence, from making the R&D tax credit permanent to modernizing export controls. But the panel was united in the sentiment that partisanship has crippled our ability to get things done, even on areas of bipartisan agreement. Daley in particular bemoaned the fact that elected officials see themselves as partisans rather than public servants.
And the stalemate is unlikely to change after the election, predicted Spiegel. The backlog of issues requiring attention in 2013 is growing, and it's keeping the U.S. stuck in neutral. "If everyone thinks all these things are going to get resolved in the four or five months after the election, it's a fallacy," he said.
