JP Morgan Economist Not Seeing Economic Storm Clouds

Buffalo News (NY)

As an economist, James Glassman absorbs a lot of information, and he has a conversational way of sharing it.

Take his view on the "skills gap" between available jobs and candidates' qualifications: "You've got all these 65-year olds who have a lifetime of skills that they've got on the job. And a 20-year old doesn't know what a 65-year old knows. So the business is complaining because they don't have guys with the right skills."

Or Glassman's point about the impact of innovation: "I tell people, it's not Amazon that's driving it. They can invent whatever they want to invent. It's when you and I embrace it. And all of us that are doing 'one click,' because we want delivery, we're fueling that process."

Glassman, who is JPMorgan Chase's chief economist, shared his wide-ranging views on the economy and what it all means for Buffalo, following his recent visit to Cheektowaga.

Q: How long can this economic expansion go on?

A: That's a big issue in the market. People like us will tell you, 'Things are great, I've never seen a cycle as good as what it looks like right now.' I personally tell people a metaphor that I think is most useful to describe where we are is the third game of the World Series.

You could ask yourself, why are people talking about a recession probability? I show this picture that shows the history of the U.S. going back to the 1900s. And what people have noticed is, we're always in flux. We're either going down or coming back. And I overlay on top of it the level of unemployment we think is sustainable.

And what people remember is, when the economy recovers and we get back to full employment, we just never stay there more than a year or two. And they're forgetting why that happens.

If you ask economists, why does this happen, it's one of two things that we'll tell you. It's either the economy is burrowing out of a recession, things overheat, inflation becomes a problem, the Fed has to step on the brakes. That's not our problem today.

The other problem in the last three cycles has been financial imbalances. Things that were really unprecedented. You didn't quite know how they were going to play out and they turned out to be devastating.

The thrift problems in 1990 that followed the deregulation of the banking system, the 2000 dot-com speculation and the stock market.

And then a decade ago, it was the real estate problems. The economy looked good, but then house prices had risen 50 percent above where we had ever seen them before.

You can worry about a recession in the next year or two, but there's nothing anyone can point to that tells you, 'that's going to be the thing that's going to trigger it,' in contrast to the last three decades.

Q: How is Buffalo's economy doing?

A: You're doing better than you did in the last decade. The last decade was kind of a nightmare, because of all of the strong dollar phenomenon.

I look at it from the point of view of employment. Buffalo's employment kind of went nowhere for much of the decade. You got hit by the recession and now you're actually on the rise. It's not like New York State. It's not like (New York City). But to me, Buffalo has a lot of possibility.

This is what I see going on in the country, and I think Buffalo is in a better position to take advantage of these kinds of things than smaller towns like Binghamton ... I sort of picture that there's going to be an organic rebalancing taking place if the economy stays in this full-employed place.

Because when you compare the quality of life in places like this one, where commutes are 15 minutes versus two hours if you're commuting from Riverside to L.A., and the cost of housing for a one-bedroom apartment in Manhattan is $4,500 and you have to share it with four people, that's crazy, right?

Q: What about wages? Will those go up?

A: Wage trends are slowly building. Average hourly earnings are running up to 3.5 percent on a year-on-year basis now. I think there's two things going on, and they're confusing people. There's a structural thing happening that's really been going on for two decades. And then there's this business cycle thing.

If you asked most economists, what do you think wages should be doing now, based on the fundamentals that we know about, we'll tell you, well, they should be growing 3 to 3.5 percent. And that's kind of what's going on.

The problem is, something deeper was going on a while ago, and it really began in the late 1990s. The share of income that's generated in the economy that goes to workers, and the share that goes to profits, has been widening. The share going to workers has been dropping.

The trends are doing better. But to close this, to reverse this whole thing, I think you've got to have people better educated for the skills that (employers) want, and that's not something you do overnight.

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