Current Issue

Previous Issues
Subscriptions About Us Advertiser Biz Directory Contact Us Links
March 2012
Economic Outlook from a Local Pro—A Lackluster Recovery
By John Paul Galles

     John Silvia is the chief economist for Wells Fargo Bank. He can be quite scholarly in his interpretations of the multitude of charts and graphs that he reads and digests and their application to different countries, regions, industries and political propositions. He has even written his own book, Dynamic Economic Decision Making, published in August 2011.

     However, Mr. Silvia is especially good at helping business people examine economic conditions and determine how they might affect business operations, growth and development.

     His recent presentation before 250 members and guests of the Charlotte Rotary opened with five benchmarks that are critical to good business decision-making. They include inflation, interest rates, profits, growth and the dollar. He suggests that the collective interpretation of these benchmarks at any point in time will provide an important foundation for business plans, objectives and expectations. He implores business leaders to reach a consensus about these factors so that they can successfully push forward in alignment with each other.

 

Mr. Silvia’s expectations are that the United States and the Charlotte region will experience:

 

• Sustained growth that continues to be less than previous economic recoveries. While real GDP continues its growth into its fourth year since the recession, growth lingers at about 1.5% to 2% per year, instead of the previous recovery trends of 3.5% to 4 % per year to which we had grown accustomed. The bright light for recovery is shining on large global businesses that are entering an expansion mode.

 

• Continuingly cautious consumer behavior. Claims for unemployment are down. Many businesses have stopped laying off employees and are actually hiring again. Actual job growth has been upwards for many months, albeit at less aggressive rates than previous economic recoveries. Employment is expected to continue to grow, but not quickly. That is leading to some growth in the consumer confidence index. Personal consumption is also increasing, but again at slower rates.

 

• Continuingly cautious housing growth. Housing starts are also growing again. While they are down significantly from their high in 2005 of 2.1 million units, they have grown from .5 million in 2008 to an expected level of .75 million in 2012. Home improvements now account for the largest share of residential investment in the economy. The steepest declines in housing prices are behind us, but the recovery will be slow in areas with excess supply of homes. Interestingly, median home size is getting smaller while household size is increasing.

 

• Substantial restructuring of federal, state and local governments. Reduced consumer spending and continuing high levels of unemployment dramatically affect government revenues. At the same time, property values have fallen and result in further reduction in revenues for state and local governments as property tax revenues fall. These, in turn, require re-examination, restructuring and re-adjusting of governmental spending programs. Many larger states like California, Illinois and others have had to radically alter spending programs to bring their budgets into balance.

 

• Significant cyclical and structural change in employment. The decline of manufacturing, the cataclysmic decline in housing and commercial construction, and the systemic reform of the banking and health care industries are causing huge changes in U.S. employment distribution. Recovering employment in these industries will take many years as workers expectations and need for transition training takes place. It took many years to create this economic struggle and it will take many years to work ourselves out of this position.

 

     Beyond all of these factors and expectations, our federal government spending will need to be brought under control. Social Security, Medicare, Medicaid, Defense, and interest outlays substantially exceed revenues over the long term and need to be changed.

     Unless or until employment levels recover and revenues recover, government spending must be managed carefully. Government spending cuts cannot be so reduced that they become a drag on economic growth, but at the same time, the deficits are not sustainable. And that leads to the political dilemma and the judgments to be made in our elections process and how/whether agreements will be reached to forge a new direction. We will see.

 

 

John Paul Galles is the publisher of Greater Charlotte Biz.
More ->
Web Design, Online Marketing, Web Hosting
© 2000 - Galles Communications Group, Inc. All rights reserved. Reproduction in whole or in part without permission is prohibited. Products named on this Web site are trade names or trademarks of their respective companies. The opinions expressed herein are not necessarily those of Greater Charlotte Biz or Galles Communications Group, Inc.