Gloom, Not Doom (At least not yet!)
by Rick_Franza
 Business through a Local Lens
December 08, 2011 03:27 PM | 1539 views | 0 0 comments | 71 71 recommendations | email to a friend | print | permalink
Last Tuesday, I had the pleasure of attending the 19th Annual Economic Forecast Breakfast sponsored by the Bank of North Georgia which was reported on in the MDJ’s business section last Wednesday. I was looking forward to attending the presentation by Dr. Albert W. Niemi, economist and Dean of SMU’s Cox School of Business. I had attended last year’s breakfast and Dr. Niemi’s forecast for 2011 was pretty close to spot-on.

Unfortunately, as reported on these pages, Dr. Niemi’s forecast was sobering for 2012. He predicts another year of slow growth (2.1% increase in Real Gross Domestic Product (GDP)) and high unemployment (9.0%), with moderate inflation (2.5% increase in the Consumer Price Index (CPI)).

At the root of his forecasts are the three keys to the U.S. economy: job creation, housing starts, and consumer spending. He provided compelling data to show that the road to full employment (5% unemployment rate) is at least six years away, that home prices will not hit bottom until late 2012 to early 2013, and that consumer spending will remain sluggish.

However, the most enlightening part of Dr. Niemi’s presentation was not the “what”, but rather the “why”. The unemployment problem, which definitely negatively impacts both housing starts and consumer spending, continues in large part to three areas of uncertainty which are interrelated. Those three areas are health care costs, taxes, and political direction.

While businesses never operate in an environment of total certainty, decision making is clearly easier in times when more certainty exists. Businesses always have to deal with uncertainty in their marketplaces with respect to customer tastes and competitor actions. While there is always some uncertainty related to the government/regulatory environment, I cannot think of a time in our history when such uncertainty existed at the level it is now. Businesses are reluctant to make investments, particularly in human resources, when there is such uncertainty related to the costs of those investments.

Whether you agree or disagree with “ObamaCare” (and I think there is both good and bad in it), its timing could not have been much worse. As the country was mired in its most significant economic crisis since the Great Depression and the goal was (and still is) to stimulate job growth, this initiative has caused enough uncertainty to cause companies to hesitate to add to their workforces. Similarly, the uncertainty as to what is going to happen to tax rates, particularly corporate tax rates, have caused similar inaction by firms. At the root of these uncertainties is the entrenchment of our national political parties, unwilling to budge from their positions.

However, there are reasons for optimism. Last February, President Obama appointed a bipartisan National Commission Fiscal Responsibility and Reform (“Debt Committee”) which was charged primarily with creating a deficit reduction plan for the long-term fiscal sustainability of the country. While the commission proved that some bipartisan agreement could be made, ultimately, both sides of the aisle were not willing to make the concessions necessary to adopt this plan for the long-term fiscal health of the country. I am also encouraged by the fact that the so-called “Gang of Six” Senators which includes Georgia’s Saxby Chambliss has been working toward bipartisan solutions to our current situation. Unfortunately, these signs of cooperation have not resulted in any action.

At this point, both sides of the aisle need to move quickly to remove the uncertainty plaguing business. Politicians are too concerned with being right than doing what is right. There is definitely room for some middle ground that will unleash the potential growth currently stymied by political and fiscal uncertainty. Otherwise, we will be looking at long-term doom, not just short-term gloom.

My next blog installment will address more specifically the state of Georgia and Metro Atlanta’s opportunities and challenges in the current fiscal environment.

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