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VOL. 10 | NO. 18 | Saturday, April 29, 2017

Economy In Flux

Uncertainty surrounding Trump administration clouds market forecasts

By Andy Meek

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With apologies to Dickens’ “A Tale of Two Cities,” for the professionals who follow economics for a living this is very much the best of times and the worst of times.

Craig Dismuke, chief economist at Memphis-based Vining Sparks, says there is plenty of optimism about potential pro-business initiatives touted by the Trump administration, but even working with fellow Republicans has been a challenge thus far, putting a lot of uncertainty in the markets.

(Memphis News/Andrew J. Breig)

The moment is one of abundant optimism and rampant uncertainty. “Directionally,” they like to say, things look positive. And yet so much could still go very, very wrong.

Those are the kinds of sentiments you’re left with after talking for any length of time to economists, investment professionals and the like, the people who have to answer queries from frantic customers and colleagues any time a talking head says something shocking or stocks make an unexpected dip. Or a businessman who’s never held an elected office before is chosen as the country’s next president, swept into the White House on a wave of big, controversial promises that include building a wall on the southern border with Mexico and repealing and replacing the Affordable Care Act.

That sound you heard on Nov. 8 was economists everywhere ripping up their forecasts and forcing themselves to reexamine what’s next for the country’s business, regulatory and tax landscape. Complicating things was the paradox of it all – unified Republican government should in theory guarantee certain political and legislative realities. President Trump’s first 100 days, though, suggest the GOP isn’t as unified as it might seem.

That paradox, says Vining Sparks chief economist Craig Dismuke, is “I think the real story right now.”

So much optimism, and so much uncertainty.

“There’s the potential for some pro-growth, in the short term, economic agenda items,” he said. “But there’s also tremendous uncertainty, because we don’t know how any of this is going to play out. We don’t know how effective Trump’s going to be at getting his economic agenda pushed through. We don’t know how united the Republicans are on any of these issues.

“The health care thing was the first shot across the bow that they might not be unified on some issues. Even with so many of them campaigning on repealing and replacing Obamacare, when they had the chance they didn’t because they wanted it to be just right. Would they do the same thing on taxes?”

Some of Dismuke’s peers are more willing to come down on one side or the other.

Timothy O’Neill, co-head of Goldman Sachs’ investment management division, told the Economic Club of Memphis in February that everyone basically needs to take a breath. If you close your eyes and look only at the messages coming out of Washington, O’Neill said, it would be easy to mistake Trump for Ronald Reagan.

Even so, it’s nevertheless tough to make too many hard-and-fast assumptions about the economy at the moment. Memphis’ publicly traded companies are doing relatively well, the real estate market here is on something of an upswing, the startup community is flourishing and attracting investment capital.

Specialist Philip Finale, right, directs trading in McDonald's shares at the New York Stock Exchange on March 1. There is considerable market uncertainty about how successful Donald Trump will be at achieving his goals as president.

(AP Photo/Richard Drew)

At the same time, proposed cuts to the federal budget could trickle down to Memphis in a host of unpleasant ways, from research grants drying up to agencies that are left short-staffed.

Optimism and uncertainty – the centerpiece of the message Dismuke plans to share May 4 when he keynotes The Daily News’ Money & Markets Seminar at the Memphis Brooks Museum of Art.

Complementing his keynote will be a panel comprised of Kim Escue, senior portfolio manager at Stringer Asset Management LLC; Jay Healy, president and founder of Century Wealth Management; and Financial Federal chairman, CEO and general counsel Kent Wunderlich.

The seminar is set to begin at 3:30 p.m. Attendees will get a chance to ask panel members questions during a Q&A session as well as informally during a wine and cheese reception to follow the event.

Part of the message Dismuke plans to share should put attendees at ease. Here’s some of what he think is worth feeling optimistic about:

“We’ve got an improving labor market,” he said. “We’ve got job growth that continues to – it’s almost unprecedented to have this long of growth in jobs.

“They haven’t been the best jobs. When we look at it by sector, we see a lot of the jobs have been created in lower-paying industries. But we’re starting to see a little bit of wage growth. That’s creating some optimism the consumer’s in a better place.”

There’s that word again.

“Consumer balance sheets are also much improved, versus what they were eight years ago,” Dismuke continued. “The deleveraging cycle has run its course, it appears. The housing market is also rebounding. But the big thing that’s created optimism was Trump’s election and the fact you could have tax reform – that he wanted to roll back some of the regulations that were a challenge for businesses.

“When you come out of a recession like we came out of, there’s a period of time where you have a lot of regulations layered on, because it’s politicians trying to save the public and the economy from what just happened. Now Trump comes in and says I’m going to roll back some of these regulations, I’m going to reform the tax code, lower individual taxes and possibly bring a fiscal stimulus plan. From an economic standpoint, those are all positive, especially in the short term.”

The Daily News 2017 Seminar Series
Money & Markets

Thursday, May 4 • 3:30 p.m. to 5 p.m.
Memphis Brooks Museum of Art, 1934 Poplar Ave.

As the economy muddles along at a tepid pace, the equity markets have soared back to all-time highs. Join us as we look at what 2017 has in store and discuss investment strategies that can take advantage of the bullish stock markets while also providing protection from potential volatility.

Craig Dismuke
, Executive Vice President and Chief Economist, Vining Sparks

Kim Escue
, Senior Portfolio Manager, Stringer Asset Management LLC
Jay Healy, President and Founder, Century Wealth Management
Kent Wunderlich, Chairman, CEO & General Counsel, Financial Federal

Seating is limited. Wine & cheese reception to follow. 


On top of that, he adds, the fact that the economy is growing at a stable rate and the labor market is improving adds up to an outlook that’s a little better than it’s been in the recent past.

The most recent update from the Federal Reserve about its local district that includes Memphis more or less tracked along those same lines, the emphasis on “moderate” in all things. The quick summary for the district from April: economic activity continues to increase “at a modest pace.” Employment growth is “modest.” Consumer spending is picking up, and banks in the area are seeing moderate growth in loan demand.

Retail sales growth, according to the Fed, has been particularly strong in the Memphis area of late. “Accordingly,” per the most recent so-called Beige Book report from the Fed, “the majority of households in West Tennessee continue to hold an optimistic outlook for their financial situation for 2017.”

Again, abundant optimism – tempered with a healthy dose of What Will Trump Do?

To that latter point, it’s hard for anyone to say. Partly because the question of who Donald Trump is – or, more specifically, what his political philosophy consists of – is still so undefined and not demarcated by bright lines. He’s accused of flip-flopping with abandon, freely ditching positions he advocated on the stump now that he’s in the White House, making it difficult to pin down what he really believes. And as a consequence, what he’s likely to push hardest for and what we should expect to happen in the months and years to come.

The uncertainty behind the optimism.

“I knew from Day One he was not a right-wing person in any way,” U.S. Sen. Bob Corker, R-Tenn., said recently on the WKNO/Channel 10 program “Behind the Headlines” hosted by Eric Barnes, publisher of The Daily News.

Upon his election, The Daily News heard from plenty of economists and investment professionals who were optimistic enough, never mind the more abrasive and controversial aspects of the nation’s 45th president. The uncertainty, though, is never far away.

One of the things Dismuke said he’d like to see that would cause him to raise his economic forecast is the implementation of a “smart” immigration policy. Another is if he and his fellow economists started to see workers earning a larger share of company profits.

Right now, he said, they’re earning a fairly small share of profits, and because of that more money is going into capital formation, which “doesn’t have as strong of a multiplier as it would if it were paid to laborers. That’s a hard trend to break.”

“Trump came into office – whether you love him or loathe him – with an agenda that from an economist’s standpoint is positive in the short term,” Dismuke said. “The health care thing was a huge blow, though, because it calls into question – can he get any of the things done he wants to get done. It raises questions about the things people have been optimistic about.”

PROPERTY SALES 70 70 16,267
MORTGAGES 30 30 10,117
BUILDING PERMITS 297 297 38,841
BANKRUPTCIES 44 44 7,641