Hartford Mutual Funds Senior Managing Director Bob Froehlich is bullish about an economic recovery.

 “We are at the crossroads,” he said during a luncheon Tuesday in New York City. “Rolling the clock back to a year ago, the debate was recovery versus no recovery. Now, as we move from recovery to expansion, the debate is whether we can sustain it.”

Froehlich cited indicators such as the Furniture Buying Index, which has increased 22% from 11 months, ADP payrolls, which declined by a comparatively slight 20,000 in February, global exports, up 28% in December, the highest level in 20 years, and corporate profits, which are set to rise 36% this year.

However, he said, “It’s not yet ‘all clear,’” and investors are still wary.

“We need to move away from manufactured earnings through layoffs and downsizing, which made the recovery over the past year a bottom-line recovery,” Froehlich predicted. “Now we need top-line revenue growth.”

That essential top-line growth will come as companies start restocking their now-empty shelves.

“I think we’ll see a bigger inventory rebuild than the consensus suggests,” he said. “That’s where the top-line revenue growth will come from.”

A greater need for inventory means companies will have to start hiring more workers, which should help kick start top-line growth at home, as those workers start spending their wages.

However, unemployment will probably stay at 9.5% or 10% for a while, Froelich said, despite an increase in hiring. This is because many people have stayed in jobs they don’t want, waiting for the economy to pick up, said.

Once the economy does pick up, many newly created jobs will go to people who currently have jobs, but they will likely move for higher wages and, therefore, will become wealthier consumers.
Froehlich said that there has already been a bigger uptick in corporate spending.

“Many companies are sitting on all this cash,” he said. “Whatever happens, there will be money in motion.”

Froehlich said that he expects economic growth to be slow at first, as consumers test the waters with low-cost purchases. “The U.S. consumer is wounded, not dead,” he said. “I think the deep discounters will come out of this strong.”

As evidence, Froehlich pointed to Dollar General, which announced plans Feb. 4 to open 600 stores and hire 5,000 people in the next 12 months. He said that he thinks the global economy will “grow on the high side” this year, despite the drags of the financial crisis in Greece and China’s rising interest rates.

On the fixed income side, the Federal Reserve is unlikely to move on interest rates until after the November election, but then, the only way is up, giving advisors eight months to take advantage of historically low interest rates. After the November election, “it’s just a question of the magnitude of the move,” Froehlich said.

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