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Investment expert sees strong economy in 2007

Here’s a thoughtful holiday gift: an upbeat economic prediction from investment manager Gregory A. Church.

Here’s a thoughtful holiday gift: an upbeat economic prediction from investment manager Gregory A. Church.

The U.S. economy will grow

2.5 percent to 3 percent next year, shrugging off grinches such as the weakening dollar, a slowdown in housing and high energy prices.

That’s what Church, who leads the investment-management unit of Sterling Financial Corp., told an audience at the Hershey Lodge at a Dec. 5 luncheon. In an interview, he said it’s not only financial investors who should be feeling cheerful, but also business owners.

“I think that business owners should look at the near-term and the future and say this economy’s going to continue to be strong and that capital investment makes sense,” he said.

Church leads Church Capital Management, Sterling’s investment-advisory unit, and oversees other Sterling Financial trust and investment units. Sterling Financial is based in Lancaster County.

Church’s predicted growth rate of 2.5 to 3 percent in 2007 would be close to what he said would end up as the likely growth rate for 2006 — 3 percent.

But Church also had a warning: There could be a bubble on the horizon, and it’s not in housing. The private-equity boom that has led to a wave of corporate merger-and-acquisition activity could eventually go too far, he said. Church isn’t ready to call it a bubble yet, but it’s getting there, he said.

“It feels bubbly,” Church said. Banks are lavishing credit on major private-equity deals. If enough big transactions were to blow up in the future, the economy could see a general credit-tightening, Church said.

Cornelia Appleby, who was in the audience, just made a big investment: She bought a historic hotel in Upper Allen Township, Cumberland County, in August. She’s restoring the building and plans to open a restaurant, coffeehouse and bed-and-breakfast in April. It will operate under its original name — The Union Hotel. Big-picture economic trends are important, Appleby said, but if she provides good service and good food, she should be all right whatever happens.

In recent months, some analysts have spoken of the potential for a recession. Church said he doesn’t see it.

The housing market will be flat for as long as five years, he said, but it won’t crash. Record-low unemployment, rising real wages and the persistence of low long-term interest rates should insure against that.

The value of the dollar has plummeted recently in comparison with other currencies, but Church said the American currency still has major advantages over its main rivals and is unlikely to sink too low.

Consumers will keep spending, and fears that Americans are become stretched too thin are probably exaggerated, Church said.

“The American consumer’s always come through,” he said. “They seem to be able to keep it together … I think this can continue.”

The stock market was flat on the year until mid-summer, but a late spurt has made it a good year on Wall Street, Church said. The reality of the Democrats’ election victory may sink in and give the stock market pause when Congress convenes next year, Church said, but he expects good returns to continue. The private-equity boom will serve as a safety net for stock prices, giving investors an incentive to hang onto shares in case a big offer is made to take a public company private.

“I think we’re in for some good times,” he said.

His presentation was hosted by Pennsylvania State Bank, a Sterling affiliate.

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