Forecasters Predict Stronger Economy and Stock Market in 2011 But Weak Employment Growth

Local economists and market pundits are forecasting that better times for the Puget Sound economy in 2011 will lift personal income and boost the stock market but do little to reduce unemployment.

Speaking at the 39th Annual Economic Forecast Conference at the Westin Hotel today, Dick Conway (who wrote our 2011 outlook in the January issue) predicted personal income will rise by 3.8 percent but employment will rise by only 1.2 percent.

Conway sees a strong rental market bringing apartment vacancy rates down to 4.9 percent this year from an already healthy 5.5 percent last year. But he sees average home prices climbing by only 1.3 percent.

Conway also argues that while export growth will help the region, Boeing growth could have a limited impact on the Puget Sound region because the company is almost at capacity here.

Meeting on the same day, a panel of area stockbrokers gathered for the 28^th annual Guess the Dow luncheon at the Metropolitan Grill, predicted, on average, that the Dow would climb 17 percent to 12,902.

As corporations begin to put their cash to work and hiring slowly picks up, consumers will feel cautiously optimistic and increase spending, said Mary Ann Heeren of RBC Wealth Management. Her northwest stock picks last year–Isilon, Paccar and Expeditors International–were the strongest performing among the picks from brokers in the group with an overall increase of 169 percent. (Stock picks by the larger group had an average return of 42 percent.)

This year Heeren’s northwest picks are Seattle Genetics (because it has a promising drug in trials), Starbucks (because of its strong growth in international markets like China and India), and Boeing, which may finally get the 787 right.

Local companies recommended by other brokers in the group included: Seabright, Microsot, Micron Technology, Clearwire, Itron, Cray, Costco, L&L Energy, Omeros, Amazon, Coinstar, Nordtrom, Amgen, Plum Creek Timber and Motricity.

Many of the brokers were encouraged to see customers moving money out of bonds and into stocks.

Public flow of funds into bond funds and regular bonds tell me the market is going higher, said Matt Kelleher of Morgan Stanley Smith Barney who predicts the Dow will close in 2011 at 13,500.

But at least one warned of dark clouds on the horizon. Bill Smead of Smead Capital Management, warned: China will be in an economic slowdown of massive proportion by the end of 2011. US cyclical stocks will correct sharply and commodities will dive. Recession resistant large caps will shine.

2010 Winning Predictions

Panelist Lynn Lindsey of Morgan Stanley Smith Barney came closest to predicting the 2010 close of the Dow. She was a mere 4 points off. Her forecast was 11,581. The Dow closed last year at 11,577.51.

Jeff Atkin of Kunnath, Karren, Rinne, & Atkin won the 10 year Treasury Bond prediction after predicting it would close at 4.1%, it closed at 3.31%.