US Economy

US economy on 3% speed limit...and that's OK: Economist

Markets rally, but where's the growth?
Markets rally, but where's the growth?

The United States will likely experience some level of secular stagnation in coming years as demographics and the nature of the recovery cap growth, a senior economist at Ameriprise Financial said Thursday.

"Quite frankly, the speed limit for the American economy today probably is around 3 percent, as compared to historically, when most of us were growing up. We remember recovery periods where the economy could grow, 4 or 5 percent," Russell Price said on CNBC's "Squawk Box." (Tweet This)

Slower population growth and America's aging society will create less demand for credit, keeping interest rates and inflation relatively low, he said. The current recovery, which saw Americans work to reduce their debt, will also contribute to persistently lower bond yields, Price added.

However, he said he is "very comfortable" with roughly 2.5 percent GDP growth because with it comes continued improvement in the labor market. Ameriprise forecasts GDP growth of 2.9 percent in 2016.

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"The speed limit being 3 percent, until we really start to generate some inflation, I think that that's positive. We're still generating pretty good job growth, so that's favorable for the consumer, and I think fundamentals continue to improve in that type of environment," he said.

Ralph Segall, co-founder and chief investment officer at Segall, Bryant & Hamill, told "Squawk Box" he agreed with that assessment but said the problem in this environment is companies have not been able to drum up much sales growth.

While sales since 2009 have risen about 5 percent, operating profit has grown roughly 14 percent on the back of "a vast amount of cost cutting," he said.

"At a certain point in here, our concern is that if the economy doesn't pick up, you 've squeezed out most of what you're going to squeeze out, and the risk to margins could be tough," he said.

Segall, whose firm manages $5 billion in fixed income and $4.7 billion in equities, questioned why the price of oil and commodities and interest rates are down if the economy seemed to be getting better.

"This is six or seven years into a global recovery. There is no real improvement there," he said. "Companies don't have pricing power, and you don't see enough strength in the economy—at least we can't find it—to figure out where that's going to be coming from."

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Price believes a boost to the economy will come from the consumer.

"Even though retail sales have been weak up to this point, consumer fundamentals are very good," he said. "Wages and salaries are growing at a better pace. Aggregate wages and salaries are growing between 4.5 and 5 percent."

Any weakness in areas that reflect consumer confidence levels, such as homebuilders and home improvement and travel and leisure, would be cause for concern, he said.