<font color=red>At Morningstar </font>’Economy has turned the corner’: Wesbury

Despite widespread concern that the U.S. economy is on the verge of a double-dip recession, economic indicators show steady growth and an undervalued stock market, said Brian S. Wesbury, chief economist at First Trust Advisors, L.P.
“We forget our history, and think everything that comes around is going to kill us, whether it is consumer confidence or resetting [adjustable-rate mortgages]. We are afflicted with hypochondria,” Mr. Wesbury said Wednesday, during the opening keynote address at the second annual Morningstar ETF Invest Conference, held in Chicago.
Mr. Wesbury sees a very small chance for recession over the next year, despite the pessimism of many prognosticators.
His firm tracks a number of high frequency economic indicators, including weekly data on railroad car loadings, steel production, retail sales, and box office receipts.
“There is not one of them that signal a recession,” Mr. Wesbury said. “Spending and regulation are heading in the right direction.” He said he believes the stock market is undervalued by a massive amount, more than it has since the early 1980s.
The downturn of 2008-2009 was due to poor decision-making in Washington, Mr. Wesbury said. The Federal Reserve’s steady increase in interest rates, from 2% in 2004 to 5.25% in 2007 helped trigger the collapse, especially in housing, he said. The beginning of mark-to-market accounting was another negative, and Treasury’s quantitative easing program added to the woes, he said.
He also said he doesn’t buy the idea that only the government can save the economy by increasing spending. Generally, when government spending goes down, real consumption and investment shoot up.
“The size of government has a massive impact on the dynamism of the economy,” Mr. Wesbury said. The budget deal to slow the growth of government spending is a positive development that will help the economy, he said. “We have turned the corner.”
Although unemployment is a drag on the economy, he said that income among those who are working is 10% higher than in 2008, and total income is higher, which is supporting consumer spending growth that currently matches the rate of growth in 2007.
Capital expenditures by business are up, which is a bigger factor in the gross domestic product than housing, which is flat.
He also brushed off the recent prediction by Meredith Whitney of at least $100 billion in municipal debt defaults. Rising government revenue from increasing incomes will take of that problem, he said.
“The whole idea that we are about to fall apart, I just don’t buy,” he said.