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.