U.S. economy stronger than it seems, IFIC delegates told

(September 11, 2003) Despite appearances to the contrary, the American economy is actually doing quite well, says Lloyd Atkinson, former vice-chair and chief strategist at Perigee Investment Counsel.

“It’s a complete and utter myth that the U.S. economy is weak,” Atkinson said this morning during a keynote address at IFIC’s annual conference in Toronto. Atkinson is now semi-retired, but still provides economic and financial market advice to Perigee’s portfolio managers.

Fiscal stimulus is strong, personal disposable income continues to advance and gains in U.S. productivity have been “nothing less than spectacular,” said Atkinson, although he noted those gains have yet to be felt in the American job market.

Consumer debt levels in the U.S. are at record highs, he concedes, but points out that is mostly the result of increased credit card usage and a housing boom which has fuelled mortgage debt. “I’m not worried about that kind of debt,” he said, “especially when interest rates are low. It’s not particularly burdensome.”

Suggestions of a housing bust are premature, Atkinson said, noting that personal income levels have risen with new home prices. There’s a relationship between the two, he says, and in Canada, “we’re still in the middle of the band.”

Atkinson expects interest rates to ramp up over the next couple of years as economic conditions improve, perhaps by as much as 300 basis points in the U.S. “But unless inflation takes off, don’t worry about long-term interest rates,” he adds.

Continuing on his theme of myths and realities, Atkinson turned to stocks, arguing that they are not too expensive. Corporate profits continue to move ahead strongly, he says. “We’re in for two to three years of outsized gains in the stock market,” he predicted. “But this is not a bond-friendly environment.”

As for the loonie, which has risen strongly this year against its U.S. counterpart, Atkinson believes those gains are probably over and the currency will remain relatively stable going forward.

During a question and answer period following his speech, Atkinson said he expects to see bank mergers in the not too distant future, perhaps as soon as next year when a new Liberal prime minister, likely Paul Martin, takes the helm.

“I think it’s going to happen. The question is how many [mergers]?” he asked, adding that could depend on whether Ottawa elects to allow more foreign competition in the banking sector.

Do you agree with Atkinson? Is the U.S. economy not as dismal as we think? Share your own forecast with your fellow advisors in the Talvest Town Hall on Advisor.ca.

Filed by Doug Watt, Advisor.ca, dwatt@advisor.ca