INDIANAPOLIS—Robert Fry isn't as pessimistic as most when it comes to the economy, but that doesn't mean he is optimistic.
Manufacturing production has been flat for the last few years, and growth has been stagnate as markets recover from the Great Recession. That was the general message of Fry's keynote address to attendees of the Adhesive and Sealant Council's 2016 Fall Expo in Indianapolis.
“I'm not going to tell you the economy is great,” said Fry, chief economist of Robert Fry Economics L.L.C. “But disappointing or slow is not the same as going down the tubes, and if you listen to a lot of people, you'd think we're going down the tubes.”
Industrial production in the U.S. has been pretty flat since November 2014, down 0.4 percent year-over-year as of August. But only a few countries, such as Mexico, are setting record highs. Fry cautioned not to trust data reported by the Chinese government, stating that actual growth has been lower and a lot more volatile than what has been reported.
He added he doesn't believe China ever will return to what it was six years ago.
In the EU, production has been stronger than most believe, Fry said, though the recent Brexit vote puts that at risk.
“I think the European economy has been somewhat better than what people think,” Fry said.
“You also need to put things in perspective and think in per capita terms. You're in an area of the world where the population isn't growing very much, so you shouldn't expect big, top line growth rates.”
One bright spot in the U.S. economy over the last several years has been light vehicle sales, which have fully recovered from the recession.
While sales for September were down compared to 2015, Fry said last fall's stretch was the strongest three-month period for light vehicle sales ever.
Light vehicle sales may have reached a plateau, but he said the economy isn't collapsing either because motor vehicle sales are still at a very strong rate because of an aging fleet.
On the other hand, home sales are recovering very slowly, and GDP growth for the last three quarters has been about 1 percent. Fry also believes that while low interest rates aid both vehicle sales and housing, they are not helping the economy overall.
“Low interest rates are actually hurting the economy,” he said. “They're forcing people to save more because they know they're not going to get any earnings on their savings. More importantly, older financially unsophisticated people didn't have money in stocks and bonds. They haven't been helped by this bull market. They put the money in the bank and planned to live off the interest income. Well they didn't get any interest income so they had to draw down the principal, and it's all gone.”
Vehicle sales also get a boost from low oil/gas prices, but those have negatively affected manufacturing tied to the oil and gas industry. Fry believes oil prices are going to stay lower for the foreseeable future.
“The reason for this decline in oil prices some people will tell you is the weak global economy or slowdown in China, and that's part of it,” he said. “But most of it is just a huge increase in supply in the U.S. because of hydraulic fracturing or horizontal drilling.
“You don't normally think of oil and gas drilling as high tech, but this has been one of the biggest technological breakthroughs in a long time.”
He also believes cheap oil is a good thing, in the long run.
“When prices are low, we grow fast,” Fry said.
“We hit an all-time peak in November of 1979, we did not get back to that peek in inflation adjusted terms until May of 2008, 28 and a half years. We stayed above that peak for three months and then prices came down. If it holds that way we could be in the 2030s before we see another peek in oil prices. If you made plans prior to 2008 contingent on oil and gas prices, those plans need to be renewed because the world has completely changed.”