CARLSBAD, CA — “Yes, the economy will continue to grow,” pronounced Martin Regalia, Ph.D., who spoke at the Gas Appliance Manufacturers Association’s (GAMA’s) 67th annual meeting, held here recently. In fact, Regalia believes that, short term, the economy is poised for a growth rate of more than 3%.

The first quarter of 2002 has shown “solid consumption” among consumers, he said. He added that a second-quarter slowdown is expected.

To say that Regalia has high credibility would be an understatement. He is chief economist of the U.S. Chamber of Commerce. Before that, he was the director of research for the Savings and Community Bankers of America, and executive vice president of Policy Development and chief economist for the National Council of Community Bankers. He is considered one of the most respected economists in Washington, DC.

And he is generally optimistic about the economic outlook. The basis of his optimism? Answer: personal consumption.

Figure 1. Personal consumption is expected to grow. (Courtesy of the U.S. Chamber of Commerce.)


“My mother told me, ‘Look at what people do, not at what they say,’” said Regalia.

The personal consumption outlook is “the heart of the economy,” he said. “When consumers spend, we grow.”

The U.S. Chamber of Commerce shows modest growth in personal consumption for 2002. (One can plainly see the effects of September 11 near the end of 2001 in Figure 1.)

What fuels consumption? Regalia explains that “When people make or have money, they spend money.” This is real, disposable personal income, he said.

Despite what other economists may have said, “People did spend money in advance of the income tax rebate,” said Regalia. “People were buying cars and houses like crazy when they were supposedly lacking in confidence.”

The losses in the technological sector, for example, affected consumer confidence. They did not have much of an impact on consumer spending. Why?

“Y2K investments turned to a glut of equipment,” Regalia explained. It takes five or six years for this investment to show up in investment figures, he said — but then the systems may have “three or four months of useful life” before a better system comes along.


Regalia doesn’t like calling the current economic conditions a recession. For one thing, “Fewer people are unemployed now than during any other recession,” he pointed out.

Then there’s the housing market, which has been strong “throughout the entire ‘recession,’” he said.

In his estimation, homebuilders seem to combine remarkable pessimism with remarkable resiliency.

“Homebuilders are like modern-day farmers,” said Regalia: “No matter when you ask, everything’s bad.” But they still keep on building houses, he said, adding, “The housing market never had a recession.”

Still, “When interest rates rise, housing will probably drop off a bit, 7% to 10%,” he said. “Over the next five to seven years, housing will be hard-pressed to meet past levels.”

According to Regalia, weaknesses of the current market — those which could become bigger problems down the road — include:

  • Corporate and personal debt outstanding, which would affect discretionary spending, and which could be affected by rising interest rates later this year (“August or beyond”);

  • U.S. trade, which has been “a drag on the economy for four or five years now,” said Regalia. The strong dollar and overall weak economy abroad is bad for the U.S. economy, he said. World trade is quoted in dollars, which is stronger than the Euro for the foreseeable future. The dollar is “the only game in town.”

  • The labor market — no surprises to the hvacr industry, this has been a longstanding problem. “It should be addressed now,” said Regalia. “In the next couple of years, the biggest challenge will be getting qualified labor.”

  • Inflation — right now it’s “benign,” said Regalia. The Energy Bill, however, could affect energy prices, and these “could bring the economy to its knees,” he said. “It goes to the heart of discretionary income.”

    The 30% tariffs on imported steel were brought up in the question session. One member of the audience asked whether the impact of that tariff can have an inflationary effect.

    It will be “like increases in any other material,” answered Regalia. “It will move through and be felt by the consumer.” It will be reflected in factory and consumer prices, he noted.

    Overall, however, there is “a good chance of doing reasonably well in the next two or three years,” he said, before concluding, “Watch out for oil prices and debt levels.”

    Publication date: 06/03/2002