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Thursday, Mar 28, 2024
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Execs See Conditions Conducive to Even Better Local Economy

A trio of finance executives from Los Angeles-based City National Bank and its parent company, Royal Bank of Canada, sent an upbeat message about the state of the economy to clients who gathered recently in La Jolla at the Lodge at Torrey Pines. They predicted continued strength in the stock market and an increase in home buying by maturing millennials.

Russell Goldsmith

Russell Goldsmith, chairman and CEO of City National, said San Diego is among the areas benefiting significantly from the sustained recovery. (San Diegans may recall Goldsmith served as vice chairman of the San Diego Padres in the early 1990s.) A recent survey of local executives revealed 70 percent believe their profits will increase in the next 12 months, said Goldsmith, who also heads RBC’s U.S. wealth management group.

Paul Single

Paul Single, a managing director with City National Rochdale, a City National subsidiary, said that while GDP expansion of 2 percent may feel like driving in second gear compared with previous decades in which faster growth was the norm, the slower pace means a recession is unlikely in the near future.

Job Growth

“Job growth has been spectacularly great,” he said, spurring consumer discretionary spending, the engine of the U.S. economy.

Gerard Cassidy

Gerard S. Cassidy, a managing director of equity research with RBC Capital Markets, said the percentage of people who want to work but have stopped searching for a job and those who are working part time but would rather a full-time role, which was just shy of 9 percent at the start of the month, is on track to drop below 8 percent. As the slack in the labor market shrinks, businesses will compete more intensely for new employees, driving up wages, he said.

Still, amid the bullish forecasts, the executives noted a few potential obstacles to continued growth. Here are three developments that could dim the otherwise rosy outlook.

1. TAX REFORM: Goldsmith said a plan to eliminate the ability to deduct state and local taxes from federal tax returns, which is being considered by the Trump administration as part of a broader tax reform effort, would hit Californians and other high-tax states more than others. He called the proposal, which he said could cost the state $100 billion in the first year following implementation, unfair — and a potential impetus for additional businesses to exit the state. He urged those who opposed the plan to reach out to their congressional representatives.

2. MULTIFAMILY: Cassidy said while credit is strong at the moment, some small banks may be overexposed when it comes to the high-growth segment of multifamily residential real estate loans. Construction of new rental multifamily homes is higher than it has been in more than 40 years, he said. “This is our one concern — not now, but down the road — for the economy and for real estate relative to the banks,” he said.

3. INTEREST RATES: “The biggest fear I have is that the economy actually overheats,” Cassidy said, acknowledging that the possibility may sound farfetched considering the pace of the post-recession recovery. But the combination of increasing strength in the private sector, fiscal stimulus and an overly quick rise in federal funds rate increases over the next 12 to 18 months would potentially juice the economy a bit more than necessary, he said.

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