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U.S. Spending Shows Confidence, Morici Tells WSJ

Oct 26, 2015
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SMITH BRAIN TRUST -- Consumer spending indicates Americans are not affected by financial market volatility and economic troubles abroad. “Retail sales have been good,” as “consumers have been spending at a rate of about three-and-a-half percent per-annum growth both in the second and third quarters,” said professor and economist Peter Morici at the University of Maryland’s Robert H. Smith School of Business, in a recent Wall Street Journal podcast. He was responding to an 87.2 to 92.1 consumer sentiment index jump from September to October.

“Household balance sheets are in great shape, albeit with a lot debt jettisoned,” he said, referring to forgiven credit card and mortgage debt. “The reality is that 60 percent of the population that is working is in good shape. They’re confident about keeping their jobs. They might not be looking for big raises, but they are out there spending again. Could it be better? Of course, if we didn’t have so many disincentives to work and so much regulatory burden on small business startups." 

China Needs Dodd-Frank

Morici also commented to WSJ on China cutting its one-year benchmark interest rate by 0.25 percentage points to 4.35 percent: “It’s not much of rate cut and it’s not going to have much consequence,” he said.

Why a seemingly small rate cut? “I think (China’s government is) pixilated –- they don’t know how to go or where to move," he said. "So they move in micro steps. ... There'll have to be structural reforms, just like here, with Dodd-Frank. We can quarrel about whether Dodd-Frank was well-conceived. But we certainly had to have reforms on Wall Street. Likewise, they need reforms at the provincial level. ... China spent a ton on infrastructure, but a lot of it is wasted.”

ECB Could Delay Fed

Regarding the European Central Bank mulling an interest rate cut and expanding quantitative easing, Morici said such moves would "likely lower the value of the euro against the dollar further and make it tougher for American companies to export.  In turn, that makes it tougher for the Fed to raise (interest) rates."

“At the end of the day, I think the Fed should (raise rates) anyway,” he said. “But it makes the decision harder."

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The Robert H. Smith School of Business is an internationally recognized leader in management education and research. One of 12 colleges and schools at the University of Maryland, College Park, the Smith School offers undergraduate, full-time and part-time MBA, executive MBA, online MBA, specialty master's, PhD and executive education programs, as well as outreach services to the corporate community. The school offers its degree, custom and certification programs in learning locations in North America and Asia.

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