Gorman Says Dirty Little Secret Is U.S. Economy Doing Fine

Morgan Stanley Chief Executive Officer James Gorman said he’s very encouraged by the performance of the U.S. economy, even amid the need for progress on some of the Trump administration’s legislative proposals.

"The dirty little secret here is the U.S. economy is doing just fine," Gorman said in an interview with Bloomberg Television in Beijing. He pointed to falling unemployment, a recovery in house prices, stabilizing local and state government deficits and some signs of quickening inflation.

Gorman made the remarks as Federal Reserve Bank of San Francisco President John Williams told reporters in Seoul that the U.S. economy is doing very well and remains on a very good growth track. While the base case remains for three interest rate hikes this year, there’s scope for the Fed to raise four times in 2017 if the economy strengthens, Williams said.

Unemployment in the world’s biggest economy fell to 4.4 percent in April while data show that consumer sentiment remains upbeat and the housing market remains tight. The S&P CoreLogic Case-Shiller index of property values in 20 cities rose 5.9 percent in March from a year earlier, matching the biggest gain since July 2014.

"If you look at it objectively, the U.S. economy is doing fine, not great, but fine," Gorman said.

He described President Donald Trump’s policy agenda as "very bold" and said it wasn’t surprising that the administration had been experiencing "tough sledding." Still, as markets adopt a wait-and-see approach, the administration will need to deliver on some of its agenda, Gorman said.

"We need progress on some of these legislative programs," he said.

Williams played down expectations for any major fiscal stimulus in 2017: “I don’t expect any changes in fiscal policy to come that will affect the U.S. economy this year in any meaningful way.” The next big step for the Fed will be to bring down the size of its balance sheet, he said, with that process expected to start later this year.

Asia’s Prospects

On Asia, Gorman said he’s upbeat on the region’s economies -- the world’s fastest growing -- and pointed to signs of a pick up in Japan. Data earlier Thursday showed capital spending in Japan topped estimates during the first quarter of the year as the tightest job market in more than two decades drove investment in labor-saving technologies.

"Finally we are seeing some life in the Japanese economy," he said.

Read more: Japan is emerging as a surprise growth market

Gorman played down worries over China’s economy and said the focus shouldn’t be on the overall growth rate, but on the size of the $11 trillion economy.

"The rest of the world would die to have growth rates north of 3 percent, let alone 6 percent," he said. "The economy is still doing well, consumption has risen, which is an important domestic driver."

Steps taken by authorities making it easier to buy Chinese stocks and bonds through Hong Kong were important developments in encouraging two-way flows of capital, he said.

As for India, Gorman said the growth story there is "very exciting."

While India’s economy unexpectedly slowed during the first quarter -- a 6.1 percent expansion in gross domestic product undershot expectations by a full percentage point -- economists forecast growth will quicken in coming quarters.

"The last couple of years under Modi has been a real change of tone and action in India," Gorman said.