Part 3: If you liked 2011, you’ll probably love 2012

What a dif­fer­ence a week makes. Last week as I described my 2012, eco­nomic out­look I undoubt­edly came off as a pes­simist rather than the “prag­matic opti­mistic” label I attached to myself. In my analy­sis, I indi­cated that other ana­lysts might not be con­sid­er­ing the full range of issues that could keep growth rel­a­tively mod­est through­out the year, includ­ing the influ­ence of the EU sov­er­eign debt cri­sis, the uncer­tainty regard­ing the state of con­sumer finances and the over-estimated strength of labor markets.

Since that time a num­ber of data have been released that seem to sup­port my cau­tion­ary warn­ings. The bailout of Greece has hit a poten­tially huge snag, with some bond­hold­ers indi­cat­ing reluc­tance to take their “vol­un­tary” 50 per­cent write-off of the value of Greek debt secu­ri­ties they hold. If unre­solved, the issue could pro­duce a default by a euro-zone member-country, cause credit default swaps uti­lized to cover such expo­sure to offi­cially per­form pay­outs and send world finan­cial mar­kets into dan­ger­ously uncer­tain territory.

As well, the strong Christ­mas retail­ing sell­ing sea­son that vir­tu­ally all ana­lysts applauded was not quite so buoy­ant. Sales rose a pal­try 0.1 per­cent for Decem­ber (com­pared to Novem­ber), and actu­ally fell when the favor­able influ­ence of car sales were excluded. Finally, just as every­one seemed to feel unem­ploy­ment prob­lems were fad­ing into the eco­nomic back­ground, ini­tial unem­ploy­ment insur­ance claims jumped back up to within a whisker of the 400,000 level.

So, this proves my brand of prag­matic opti­mism is cor­rect and num­bers will now come out con­sis­tently sup­port­ing my mod­est out­look, right? Of course not. But then, that is the nature of eco­nomic events in these highly uncer­tain times. Some­times the data will seem to sup­port a highly opti­mistic view­point, while at other times depress­ing short-term devel­op­ments seem to sup­port the impend­ing nature of the much-feared dou­ble dip reces­sion. More likely than either extreme, how­ever, is that mediocre, unim­pres­sive mid­dle ground, where the econ­omy just mean­ders along, with nei­ther solid improve­ment nor harm­ful backsliding.

So, as dis­cussed last week, the eco­nomic growth poten­tial for the U.S. is likely some­where around 2 per­cent for the year, with some 1.75–2.0 mil­lion (net) new jobs being cre­ated. But within this slow-growth envi­ron­ment of mod­est job cre­ation, the much-watched unem­ploy­ment rate may begin to rise as dis­cour­aged work­ers move back into the work force, keep­ing the unem­ploy­ment rate uncom­fort­ably close to 9 per­cent through­out much of the year.

Here in the state of Ohio, the antic­i­pated national out­look should allow for con­tin­ued improve­ment in busi­ness hir­ing, but at a very mod­est pace. Given the expected prob­lems in export related activ­i­ties (due to the euro-zone reces­sion and the sov­er­eign debt cri­sis) and res­i­den­tial con­struc­tion (due to a likely new wave of home fore­clo­sures now that the issue of “robo-signings” is largely passed), Ohio employ­ment lev­els in man­u­fac­tur­ing and con­struc­tion are pro­jected to fall by –0.8 per­cent and –2.5 per­cent, respec­tively. Despite the down­ward pres­sure of these sec­tors and a few oth­ers — includ­ing retail­ing, infor­ma­tion and gov­ern­ment — Ohio’s pay­roll employ­ment lev­els should rise by approx­i­mately 0.5 per­cent for the year. Most of the highly favor­able jobs growth will occur in “professional/business ser­vices” and “educational/health ser­vices” with employ­ment lev­els pro­jected to grow by 2.4 per­cent and 2.5 per­cent, respectively.

For the greater Colum­bus met­ro­pol­i­tan area — which includes Delaware County — the out­look will be much the same. Growth in total nona­gri­cul­tural pay­roll employ­ment lev­els will be approx­i­mately half-of-one per­cent in 2012, amount­ing to just under 5,000 new (net) jobs for the greater Colum­bus area. And much like the over­all state per­for­mance, some sec­tors — includ­ing man­u­fac­tur­ing, infor­ma­tion, retail­ing and gov­ern­ment — are fore­casted to post local job losses.

The losses in retail jobs for both Ohio and Colum­bus will result par­tially from the impact of on-line shop­ping through­out the year and the reduced need for bricks-and-mortar out­lets. If accu­rate, this fore­cast sug­gests too much retail sell­ing space exists through­out much of the coun­try (Ohio and Colum­bus included) and the clo­sure of selected out­lets is a more prob­a­ble out­come than the out­right fail­ure of over­all com­pa­nies. Of course, with a con­tin­u­ing move­ment toward on-line retail­ing, other busi­nesses may well expand job oppor­tu­ni­ties, includ­ing ware­hous­ing and trans­porta­tion activ­i­ties asso­ci­ated with the deliv­ery of mer­chan­dise to on-line shoppers.

In short, 2012 is not likely to see stel­lar growth nation­ally, region­ally or locally. But then, the con­di­tions needed for out­right reces­sion also seem to be lack­ing. So, if you liked last year, you’ll love 2012.

Dr. James New­ton serves as chief eco­nomic advi­sor to Com­merce National Bank and is an aux­il­iary fac­ulty mem­ber in eco­nom­ics and sta­tis­tics at OSU-Marion and OSU-Newark. Dr. Newton’s views do not nec­es­sar­ily reflect those of Com­merce National Bank or OSU-Marion/Newark.

Posted by Jim Newton on Jan 18 2012. You can follow any responses to this entry through the RSS Feed. Comments can be made below.