Barclays Banker Is Optimistic About Economy
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Larry Kantor is not like other economists. While his peers have been engaged in a vicious spat as to who can predict the darkest scenario for the American economy, Mr. Kantor has been quietly and self-assuredly forecasting quite the opposite.
In spite of oil closing at a new all-time record above $140 on Friday, more than one million Americans facing the loss of their homes, and major American stock markets on the verge of entering a bear market, Mr. Kantor remains one of a small band of economists to remain positive on the prospects for American financial wellbeing.
Mr. Kantor, the global head of research at Barclays Capital, predicts that the American economy will experience a growth rate of 3% in the second half.
Confused? You shouldn’t be, Mr. Kantor argues. The American economy is not doomed, he argues, as evidenced in the strength of consumer spending. The more common school of thought suggests that American consumers have stopped spending because they’re being hit by a double whammy of being unable to sell their home and price inflation.
“But there’s no empirical evidence to support that at all,” Mr. Kantor said. “If that were the case, you’d see the savings rate go up. In other words, people would be spending less out of their income, but they’re not, they’re spending the same amount.”
The big change is that “more of that spending is being taken up by higher prices for gasoline and food, leaving less of that money for discretionary spending.”
Although he admits the rising oil price could knock his forecast — due to the average American’s reliance on his or her car — his research implies that it will not keep on increasing, in spite of his firm belief that the current price run is based on “fundamentals, not a bubble.”
Growth in the second half will, he argues, be driven by the Bush administration’s $150 billion fiscal stimulus package and the fact that the American housing market will finally reach its nadir after almost two years of trying.
On the housing market, Mr. Kantor is not naive, acknowledging that the contraction has been “dramatic,” but he points to recent home sales data which appear to be showing some signs of stability at last.
