Associated Bank economic advisor Sara Walker is forecasting continued slow economic growth for 2013, but she remains optimistic for the year ahead.
Walker, senior vice president and investment officer at Associated Trust Company N.A., recently presented an Economic Update & Market Outlook for private client and institutional service customers at the Harley-Davidson Museum in Milwaukee.
Careful business decision making and promising market conditions are bright spots for the year ahead, Walker said.
“We’ll always have slip-ups, but generally speaking, there are many reasons to be optimistic,” she said.
Consumer sentiment and spending are very important to the economic recovery, Walker said. Sentiment is low, partly because of an increase in the payroll tax, but the lingering uncertainty in today’s world means that figure may never get back to its prior levels, she said.
The total unemployment rate, which includes those who are underemployed or discouraged, is still quite high, she said. It was at 17.5 percent at the peak of the recession and is now at about 14.6 percent, she said.
However, the sluggish improvement in the unemployment rate indicates well thought-out decision making by businesses, which contributes to Walker’s optimism.
“It is so important that business responds to this environment of less than robust growth, and they are,” she said.
The frustratingly slow, steady growth is a foundation for good, manageable future growth, she said.
Banks are beginning to increase commercial and industrial loan activity, and Associated Bank expects to see high single-digit improvements for loans in 2013, Walker said.
“We don’t see loan growth expanding at any unmanageable pace because businesses are in a good financial condition, they’re flush with cash, they don’t need cash,” she said.
Globally, technological advances such as smartphones have increased connectivity and interaction between businesses and their customers, Walker said.
China’s new leader plans to focus on urbanization, which will lead to rising demand for U.S. products and increased trade as China’s population aims to improve their standard of living, Walker said.
“This all leads to improved corporate profitability in the United States,” she said. “We do not view China as a threat — we see it as an opportunity.”
In the year ahead, Walker predicted the U.S. gross domestic product will continue to grow at 2 to 2.5 percent and U.S. business earnings will grow at 7 to 10 percent.
Interest rates are likely to remain low for several years, which will make it difficult for investors to gain yield but was designed by the Federal Reserve to boost investment activity, Walker said.
Walker urged investors to get in the stock market to take advantage of the opportunity and gain more yield.
“You don’t need to be all in, but you need to be in,” she said. “To miss out on an opportunity like this would be a tremendous mistake.”
Associated has diversified its fixed income portfolios to take on more risk and pick up some extra cash, she said.
Walker, who is a Chartered Financial Analyst, has a positive outlook for stocks, weighted toward the beginning of the year. The bank continues to hold a diversified stance and has again increased exposure to developing markets with improved global economic conditions.