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Fifth Third Bank economist is optimistic for 2013
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Speaking to a group of black professionals and business owners in Charlotte, John Augustine, Fifth Third Bank's chief investment strategist, delivered a message of economic optimism for 2013. (Photo: Glenn H.Burkins for Qcitymetro.com)

Despite some lingering concerns, the economic outlook for 2013 remains strong, John Augustine, chief investment strategist at Fifth Third Bank, said Thursday in Charlotte.

Speaking at the Charlotte City Club to a group of black professionals and business owners, Augustine said he had come to deliver a message more optimistic than the “Back to Basics” theme he chose for a similar crowd in 2012.

The breakfast event was part of a Black History Month celebration sponsored by Fifth Third Bank’s African American Network, a group of Fifth Third employees who meet to promote diversity in the company as well as community outreach.

Augustine, who is based in Cincinnati, joked that with the improved U.S. economy, “greed has returned” to financial markets.

To buttress his growth predictions, Augustine noted five areas of activity – financial markets, housing prices, economic indicators, household wealth and government policy – that he said all point to modest gains in the months ahead.

But Augustine also cautioned that federal budget deficits and a growing national debt would continue to fuel economic uncertainty.

To illustrate the nation’s debt problem, he likened the federal government to a worker earning $26,000 a year who spends $38,000 a year and carries a $160,000 credit card balance. At the same time, he said, that worker also has made promises to assist friends and neighbors.

Because of the nation’s debt, he said, “We as business people and investors, we’re going to have to continue to manage through government policy issues for the rest of this decade.”

Augustine said Congress so far has managed to avoid the kind of spending cuts and tax hikes that some economists once feared might sink economic growth.

“The good news is the stress on the economy in the near term is greatly lowered,” he said. “The bad news is that it doesn’t solve their fiscal problems at all. It just kicks the can down the road.”

Here is what Augustine said of the five sectors that fuel his optimism:

After years of fear and caution, “greed has returned” to the private markets, he said. More investors are now selling safe-harbor assets such as gold and U.S. Treasuries buying growth-based assets such as stocks and real estate.

Housing prices rose year-over-year in 19 of the nation’s 20 largest markets, including the Charlotte region, which saw a 5 percent increase. Only the New York market registered a year-over-year decline. Phoenix saw the largest rise at 23 percent.

In the world’s 10 largest economies, indicators have stopped falling and are now rising. In the United States, the economy grew at a rate of about 2 percent in each of the last three years. Barring unforeseen events, he said, Fifth Third economists are predicting growth this year of about 2.5 percent.

Household Wealth
After years of decline, the net worth of American households is climbing again. Most of that wealth is in the form of home equity and investment portfolios. But despite being worth more, Augustine said, American families have not returned to their pre-recession spending habits.

By failing to pass massive spending cuts or tax hikes, Congress has reduced the economy’s “stress level,” Augustine said. As for the so-called “sequestration” cuts that currently loom, he predicted that Congress would “blink” before they are fully implemented. He also said the Federal Reserve would keep interest rates low, which is good for financing the federal debt but bad for families and individuals.

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