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Economists Forecast More Recovery for Region in 2014
YOUNGSTOWN, Ohio -- The news about the regional and national economies is, for the most part, good and getting better. The consensus among economists is that the recovery is gaining strength.
Annual sales for U.S. automakers hit a six-year peak in 2013 and should be even higher this year. Sales of the Chevrolet Cruze, produced at Lordstown, slid in December but set a record of 248,224 units for the year, 10,466 above 2012.
All signs point to the continued strengthening of the U.S. dollar this year. The dollar gained roughly 5% in 2013 against foreign currencies.
And in December, the Federal Reserve began trimming its $85 billion a month quantitative easing by reducing its bond purchases.
Consider:
- The stock markets ended 2013 well above where they stood Jan. 2. The broad market gauge gained nearly 30%, its biggest jump since 1997 and the Dow Jones Industrial Average had its best year since 1998, gaining 26.5% and hitting 52 new highs along the way. The Nasdaq surged 38%.
- Corporate profits rose to a record $3.2 trillion.
- Gold tumbled at year-end to $1,300 an ounce from $1,700 in January, an indicator that investors felt less need for security.
- Housing – both the prices of residences on the market and the number of starts – rose thanks to the aggressive efforts of the Fed to keep rates low. By September, the prices of houses put on the market in the United States were 13.3% above where they stood a year earlier. Sales of houses in Ohio in 2013 were 14.7% ahead of 2012 and the average sales price increased 5.9% statewide, the Ohio Association of Realtors reports. In northeastern Ohio, the 16 counties that comprise the Northeast Ohio Real Estate Exchange saw an average selling price of $135,761, the exchange reports, 5.9% better than last year. Fourth-quarter sales were 6.7% better than in 2012, the best fourth quarter since 2006.
- In the Mahoning Valley, the average sale price (to the nearest $100) in Mahoning County went to $95,800 in December from $92,200 in January (and $76,000 in January 2012). In Trumbull County the average sale price went to $85,200 from $69,000 in January. And in Columbiana County, the price in December, $106,700 rose from $86,500 in January.
- Inflation remains low, less than 2% this year, and likely to remain low.
Despite those stellar statistics, gross domestic product – more commonly called the economy – grew just 1.8% in 2013 after being adjusted for inflation, well below the 3% minimum economists would like to see. And the unemployment rate remains stubbornly high. “We should be closer to adding 400,000 to 450,000 jobs [a month],” says Kenneth T. Mayland, president of Clearview Economics, Pepper Pike, “than the 190,000 a month growth of payroll averaged in 2013.”
More recently, he notes, the economy has been adding 200,000-plus jobs a month.
The economists The Business Journal approached for their outlooks, Mayland, George Mokrzan of Huntington Bank in Columbus, A.J. Sumell at Youngstown State University and Kurt Rankin of PNC Financial Services Group in Pittsburgh, expect the economy this year to perform better than last, unemployment to drop to below 7%, inflation to remain low, housing to continue its recovery, manufacturing to lead the economy and the glut of natural gas to continue, keeping energy prices down.
Mayland sees GDP growing 2.8% overall – “a significant improvement from 1.8%” he points out, but nowhere near the rate needed to make a respectable dent in unemployment. He sees 2.5% growth this quarter, 2.9% growth the second quarter and 3.1% the third and fourth quarters. Growth last year was hampered by all of the uncertainty when 2013 began, over the tax rates or the spending cuts required by sequestration. No one knew what the effects of the fiscal drag would be.
Fortunately, Mayland says, “Most uncertainties were resolved in a positive way. We had 1.8% growth with a lot of fiscal drag.” The government raised taxes $150 billion and sequestration meant $85 billion in spending the government withheld from the economy.
Mokrzan, director of economics at Huntington, sees the economy growing 2.7% this year because consumers are saving more (which includes paying down debt and refinancing it at lower rates). “The low-interest-rate environment is helping people manage their finances better,” he observes. “And the world economy is looking better. It’s not robust – there are some disappointments – but it’s looking better. … Our region is stronger than the U.S. economy.”
The American Bankers Association reported Jan. 9 that consumers delinquent on their debt “declined significantly in the third quarter as the economy improved and consumers better managed their finances.” In eight closed-end installment loan categories, the ABA found, delinquencies fell 0.15% to 1.63%, “a record low that’s well under the 15-year average of 2.35%.” Bankcard delinquencies, however, rose 0.13% to 2.55% of all accounts but remain more than 30% below their 15-year average.
At PNC, Rankin predicts “2.52% inflation adjusted growth” for the U.S. economy. By quarter, the economist sees 2.5% growth this quarter, 2.7% in the second, and 2.5% in the third and fourth quarters.
Sumell, a professor of economics at YSU, sees the “regional domestic product [growing] 2% to 3%” and the number of residents with jobs “up 1 to 2%.”
Also contributing to growth, he says, “It’s gotten easier for small businesses to secure credit. I haven’t heard of any viable businesses not getting credit as opposed to a couple of years ago.”
Two academic economists, Kenneth S. Rogoff and Carmen M. Reinhart, authors of the best-selling This Time Is Different: Eight Centuries of Financial Folly, say the United States is doing relatively well relative to its emergence from other severe recessions. Historical data show it takes 7.4 years for an advanced country to emerge from a major recession, they say, and return to where its GDP stood before the crisis.
None of the economists interviewed expects the level of unemployment to drop below 6% nationally by year-end and Sumell notes the region was hit hard by the 5,000 layoffs after the holiday season of 2012 and never fully recovered. “It was a surprisingly bad start to the year,” he says. With today’s rate around 8% in the Valley, he predicts that figure will drop to 7% by December “driven by an increase in the number of jobs,” not people giving up and dropping out of the labor market.
Mokrzan sees the unemployment rate dropping to 6.4% in the fourth quarter because of the increase in the number of jobs.
In The New York Times, Steven Rattner, former business writer for that paper who became a successful investment banker, observes that it will take until December 2018 before employment levels return to where they were before the Great Recession. This assumes a static 200,000 gain in jobs per month.
The level of unemployment will keep a downward pressure on wages, the economists agree.
As for the impact of increasing the national minimum wage –- $10.10 an hour by 2016 is the goal advocates hope Congress will adopt – the economists interviewed don’t see it hurting growth. “I don’t expect undue strain on the economy one way or the other,” PNC Rankin’s says. “[Adults] who start out at minimum wage don’t stay there long and they do get a raise after six months.”
“My inclination is to believe it would have little measurable effect,” Mayland says. “If it goes to $10 or $12, it would affect teenage employment, which is still high since the last time they raised the minimum wage. You cannot legislate productivity.”
Huntington’s Mokrzan points out, “Sometimes it can hurt the people it’s intended to help. The people earning it are marginally employed. The problem is that the rebound has been so slow and the continuous squeeze on labor markets has hurt everyone.”
Because growth should pick up this year, Mokrzan foresees little economic harm to those paid minimum wage.
All scoffed at the suggestion of a large number of two spouses working 40-hour weeks in minimum wage jobs.
Seven winners of the Nobel Prize in economics and eight former presidents of the American Economics Association endorsed raising the minimum wage to $10.10 an hour in three steps by 2016. They sent a letter Jan. 14 to President Obama and Congress urging the increase.
The effect of Congress not extending unemployment insurance to the long-term unemployed will cause those whose benefits ended at year-end to redouble their efforts to find work, Rankin, Mayland and Mokrzan agree. Advocates for the extension say the number of unemployed is triple the job openings.
As for Congress reducing SNAP, as the food-stamp program is now called, “It will have a dampening effect [on the affected families], but not catastrophic,” Rankin says. “They’ll have less money for food. They may have to cut back on fuel.”
Says Mayland, “It will have less impact than you think. There’s been an enormous increase [in recipients] in the last four to five years. There’s been abuse and no doubt some will go hungry. Hopefully private resources [food banks, soup kitchens] will step in to fill the honest needs.”
Elaborating on a bright spot in the economy, Mayland points to increased sales to truck fleets, Class 8 and other heavy-duty trucks and sales of more diesel cabs. He projects sales of light vehicles to reach at least 16.1 million, maybe as many as 16.5 million, by year-end. 2013 recorded 15.6 million cars and light trucks.
Mokrzan also sees sales of 16.1 million plus “the potential for upside surprises. To reports that consumer confidence is reflected by consumers buying more expensive and full-size cars and pickup trucks and fewer economy models, the Huntington economist says, “Consumers are still pragmatic. They stay within their budgets.”
Rankin suggests consumers are comfortable turning to full-size autos and pickup trucks because of gains in fuel efficiency. He also notes the increased market share of foreign makes built in the southern United States.
With consumers more confident about buying houses, Rankin says banks are enforcing 20% down unless other aid is forthcoming. “Continuing low interest rates continue to make houses more affordable,” he says.
The Midwest, where Huntington Bank has most of its markets, offers the most affordable houses, Mokrzan relates. He sees prices continuing their rise and mortgage rates increasing the first half of this year. “In the Midwest, we are a steady turtle,” he remarks.
The economy can absorb 1.3 million new housing one-to-four family units a year, Mayland says, but is on pace for only 900,000. Mortgage rates are on the verge of rising, he states, an indication of a healthier economy.
EDITOR'S NOTE: This story first appeared in The Business Journal's Growth Report 2014. To order a copy of this 120-page business and industry progress report, CLICK HERE.
Copyright 2014 The Business Journal, Youngstown, Ohio.
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