We’re in the 7th Inning: A “Realist” Take on America’s Economy

In the wake of Brexit (the United Kingdom vote to exit the European Union) and attacks in cities such as Paris and Nice, JP Morgan Chase Managing Director and Head Economist Jim Glassman says there’s a common perception that globalization is nearing its end.

“There’s a fear, a protectionist swell … that the benefits that we’re getting from globalization are coming to an end, and this whole process is not going to go forward,” Glassman said during the keynote presentation of the July 21 Global South Metro Exchange. “Personally, I think that horse left the barn a long time ago.”

Much of the world, with countries such as China and India, is now awakening to economic activity levels the United States has enjoyed for decades, Glassman said. And that means great benefit for middle-market clients who are connected to emerging markets and can benefit from free trade deals.

“These are markets where half the world population lives, and they are on the march to achieve what the United States and Europe has achieved over the last couple hundred years,” he said. “Economic opportunities for us are enormous.”

He postulated that global economic growth will likely lead to more even distributions of wealth and reduced military conflict.

“The comment I like the most about this story is a comment that [German Chancellor] Angela Merkel made after Putin annexed Crimea,” Glassman said. “She said: ‘The world is moving in a different place. We are all becoming more dependent on each other, and those who disrupt the process may find that it does more harm to them than it does to everybody else.’”

America’s Economy

As for American economic recovery, Glassman said the U.S. economy is doing fine despite a sustained 2 percent growth rate, which may seem slow when compared to growth rates enjoyed in the 20th Century.

Current inflation rates are not at worrisome levels, and the pace of layoffs has held steady since 2015 (with South Carolina layoffs 50 percent below pre-recession rates).

“This information is kind of giving you a pulse of the whole economy; it doesn’t tell you how much unemployment there is, it just tells you that if there’s a disruption, you’re going to see it show up here,” Glassman said.

“And what it’s been telling us for a long time is that the U.S. economy is doing a pretty good job getting back on its feet. I don’t care what GDP says, we’re humming pretty well.”

Glassman challenged the audience to recall 2009, when real estate values fell by one-third, leaving about $3 trillion of mortgages underwater and people likened it to the Japanese slowdown, which took several decades to recover.

Now, employment is up almost 15 million, while unemployment has come back down to 4.9 percent.

“It’s not the whole story, but it’s an important story. The auto industry has gotten back on its feet, … (there is) construction activity all over the street, cranes moving in towns all over the country.”

For Glassman, it’s a healthy and typical amount of activity where businesses seize new opportunities. “For me, when I try to follow what’s going on in the economy, I don’t pay attention to the rhetoric, I only pay attention to the business community.”

Where are we in recovery?

Historically, market recoveries have a pattern of lasting between six and 10 years before another recession hits. Glassman used sports to demonstrate our standing eight years into the recovery process, and he forecasted a positive outlook.

“It’s more like baseball than like football. It’s not about the clock, it’s about getting to the ninth inning, and when we get to ninth inning, we’ll be talking about whether it goes extra innings.”

Rather than relying on unemployment rates as an economic monitor, Glassman suggested examining the status of working-age populations between 20 and 45 — many of whom may not be participating in the labor force but may be seeking advanced degrees or otherwise receiving financial support from their parents.

“We have another maybe 1-2 million people left to [become employed] before we economists can claim that we are back to a fully employed economy,” he said. “To me the positive implication of that message is whatever we have been doing, there is no reason to think that we cannot continue to do this another couple years, and it’s the reason I say we’re in the seventh inning. But the more important thing is, we’re getting there. And I think we’re doing quite well.”

He speculated that the recovery may go on longer than historical periods because the Federal Reserve is several years away from an inflation-related market intervention and based upon the health of the housing market.

For more on Glassman’s economic perspective, visit JPMorgan Chase Markets and Economy page.