Predictions that a downturn in housing will trigger a slowdown or a recession in coming months are overblown, Wells Capital Management chief investment officer Jim Paulsen told a Denver audience Thursday.
A weaker housing market should not derail consumer spending or the economy because other sectors are picking up the slack, he said.
“Housing has (slowed), and the economy is doing fine,” Paulsen said. “We have other things stepping up.”
Spending on houses and autos represents about 9 percent of the nation’s total economic output. Although those sectors are weak, others are growing.
Trade, manufacturing and commercial construction are increasing at a pace that Paulsen expects to compensate for the slump in residential real estate.
An accelerating global recovery should continue to carry the U.S. along with it. Of the world’s 180 national economies, all but three are growing, according to the International Monetary Fund.
Paulsen admits that a major collapse in home prices could derail his expectations for gross domestic product growth of 3.5 percent to 4 percent next year.
Some economists are cutting their forecasts to the 2 percent range. A few, such as U.S. Bank regional economist Tucker Hart Adams, forecast a recession.
Stock investors have driven shares of homebuilders higher in recent days, something they wouldn’t do if they thought darker days were ahead for the housing market, Paulsen said.
Mortgage rates have fallen since July from an average of 6.8 percent to a current rate of 6.31 percent for a 30-year fixed loan. Sharp drops in gasoline and energy prices are also providing a boost to consumers.
“I really think the consumer is doing fine,” he said.
The business sector, which is sitting on a huge hoard of cash, is doing even better, he said.
Total profits per employee are at all-time highs, meaning hiring will likely continue in the months ahead.
“When U.S. companies are exploiting us this badly, why wouldn’t they hire us?” he said.
Staff writer Aldo Svaldi can be reached at 303-954-1410 or asvaldi@denverpost.com.
