Mark Zandi: One economist who's expecting clear skies in another year

At a Monitor breakfast this week, economist Mark Zandi listed several reasons why he's optimistic about the American economy. In six to 12 months, 'we are going to be surprised at how well the economy is doing.'

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    Economist Mark Zandi at a Monitor breakfast Aug. 25: Households have their balance sheets in order and exports show promise.
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Just when America is feeling blue again about the economic outlook – a sharp drop in housing sales is the latest reason to sigh – along comes a credible someone to cheer us all up.

Not about the near term, mind you. Mark Zandi, the chief economist of Moody’s Analytics and co-founder of Economy.com, told reporters at a Monitor breakfast Aug. 25 that the next six months or so will be rough.

But he’s an optimist after that. “I firmly believe that once we get by the next six to 12 months we are going to get our groove back and we are going to be surprised at how well the economy is doing.”

Mr. Zandi is just one voice, but people do listen to him. He advised John McCain’s presidential campaign, for instance. Last year, The Wall Street Journal called him the “defacto chief economist to Congress.”

Here are some of his reasons for optimism:

The American household has its personal balance sheet in order. At least that’s true of the consuming public that does most of the buying – those above the median household income of $55,000.

He also says that eventually, demographics win. Right now, Americans are spending under their demographic needs. For instance, Zandi estimates they need 15.5 million cars a year – based on demographic changes such as kids going off to college and graduating to wheels of their own. But consumers are holding back, buying only 11 million. At some point, auto sales will “rocket higher.”

But expect America’s exports, not its consumers, to lead the way to a healthy economy, he says. Emerging markets such as Russia and Brazil will buy more traditional US goods, such as aircraft, machine tools, and computer equipment. They’ll also need American services: accounting, legal, management, and financial advice, as well as architecture, media, and entertainment.

Meanwhile, Zandi says, big business is “strong,” credit is improving “rapidly,” and political uncertainty over major reforms is beginning to abate – though he’d like to see Congress and the White House quickly come to a compromise on what to do with the expiring tax cuts of the Bush era. His advice: Don't raise anyone's taxes in 2011; after that, in 2012, 2013, or 2014, when the economy's getting stronger, then you can raise taxes on upper incomes.

Overseas, Europe’s economy is proving surprisingly resilient, despite last spring’s badly timed debt debacle that shook American confidence just when the economy was about to evolve into a self-sustaining recovery (his view).

Of course, there could be unhappy surprises ahead, Zandi admitted. But for now, he’s got his sunglasses ready. Just you wait.

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