Local economy to remain stagnant in 2014, economist says
Local economy to remain stagnant in 2014, economist says
Dayton Daily News, Ohio
Economists are expecting an improved 2014 nationally for economic growth, saying with less drag from federal government policy, the economy is poised to continue adding more jobs, spurring higher consumer spending.
The economy should also benefit from stronger export growth as demand improves in Europe and Asia, experts said.
The growth is not expected to be dramatic. The PNC Financial Services Group's economists are projecting real Gross Domestic Product growth of 2.5 percent for the year ahead, up from growth estimates of 1.6 percent for 2013. Real GDP estimates the value of goods and services produced in the U.S. adjusted for inflation.
PNC is expecting total employment growth of 1.6 percent in the U.S. to be unchanged in 2014 from 2013, but sees the national unemployment rate sinking from 7.4 percent in 2013 to 6.7 percent next year.
"It's going to be noticeably better in 2014 than 2013," said Gus Faucher, senior economist for PNC.
However, growth stagnated the last year in the Dayton area, and local economic expert Richard Stock does not foresee much improvement in the year ahead.
Stock does not "expect any immediate resolution on defense spending by the federal government," which weighs on the local economy.
The Dayton-area lost 34,100 jobs from August 2007 to August 2009. Since 2009, 7,200 jobs have been recovered. However, only 700 jobs were added back from August 2012 to August 2013, said Stock, director of the University of Dayton Business Research Group.
"This last year has been problematic," Stock said.
"I do think it's probably the case that we are starting to feel some of the effects of sequestration over time. (Wright-Patterson Air Force Base) has been a very steady, reliable source of employment for us," he said.
"It's definitely the case that it has now become something of a problem for us. We do see a decline in the federal government over these last two years. That has harmed us," he said.
For example, the professional and business services industry sector is growing jobs in Dayton. But growth could have been greater if not for the squeeze on defense contractors, Stock said.
Over the period of 2009 to 2012, the Dayton market saw a slight recovery in manufacturing employment that then declined slightly in the last year, he said.
Even though Dayton is growing jobs with respect to health services, jobs related to the education and health services sector are growing less rapidly in Dayton than Ohio and the country as a whole, he said.
Similar to Ohio and Cincinnati, Dayton has seen some declines in local government employment, whereas the nation as a whole has seen local government employment stagnate or grow in recent years, he said.
"We can't even achieve average growth"
The average long-term growth rate for the U.S. economy going back 60 years is about 3 percent, said Ken Mayland, president of ClearView Economics LLC. But the American economy's recovery has been feeble. In 11 of the last 15 quarters, the economy has grown at an annual rate of less than 3 percent, Mayland said.
"We can't even achieve average growth," Mayland said in October at KeyBank's annual economic forecast presentation.
Major problems include weak job growth. The U.S. has seen payrolls increase by 184,000 on average a month over the last 12 months. To put that in perspective, payrolls were growing by about 450,000 a month in two post-recession periods in the 1970s and 1980s adjusted for the size of today's labor force, Mayland said.
Job growth is "puny versus what we actually achieved in the past," he said.
Meanwhile, average wage growth is trending at about 2 percent, the same as inflation, he said.
"The increase in wages has only compensated for the increase in prices," he said. "You've got to get job growth higher to achieve higher economic growth."
Other things impacting the economy include a period of federal government stimulus replaced by budget cuts; regulations; and uncertainty.
"We had some major, major uncertainties as 2012 came to a close and we entered 2013. The easiest thing to do is wait and see until the dust settles," he said. "A number of the uncertainties have been reduced" since this time last year.
"Where we are disappointing is job growth"
Nationally, the economy remains about 1.5 million jobs below the pre-recession employment peak, Faucher, of PNC, said. However, U.S. GDP actually recouped its losses from the recession by the end of 2011, according to government figures.
Faucher is expecting strong growth for 2014 in anticipation that jobs will continue to grow as productivity -- which has boosted output -- slows, he said.
Businesses are starting to find they can't count on gains in productivity thanks to technology and hard work alone to meet growing demand.
As demand has improved, corporate profitability has picked back up, he explained. Therefore, companies have the means to hire at a time when labor costs are still relatively low.
These factors create conditions for stronger job growth.
Its been weak because "businesses are scared and businesses have been very, very cautious. This is the worst downturn that we've experienced in our lifetime," Faucher said. "They need to be convinced the economy will continue to improve, demand will continue to improve, to be convinced to hire."
-- ABOUT THE ECONOMISTS
-- Vice president and senior macroeconomist of The PNC Financial Services Group
-- Contributes to the preparation of PNC's U.S. economic forecast, alternative economic scenarios and other reports
-- Presented at PNC's Economic Forecast Luncheon in Dayton this fall
-- President of ClearView Economics LLC, a Cleveland-area firm specializing in economic research and forecasting
-- Member of the Blue Chip Economic Forecasters and Financial Forecasts survey panels, and several wire service and newspaper survey panels
-- Presented at KeyBank's 2013 Economic Forecast in Dayton this fall
Director of the University of Dayton Business Research Group
Presented at PNC's Economic Forecast Luncheon in Dayton this fall
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