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U.S. Economy Stuck in the Slow Lane; Southeast has Higher Speed Limit 

southeast us-annual focus

Interview by Rachel Duran

The Southeast is doing better than average as we prepare to enter 2013.

Editor’s Note: To learn the most up-to-date data as to the state of the economy, visit The Conference Board at www.conference-board.org.

In the fourth quarter of 2012, the U.S. economy is picking up at a slow pace, but the fiscal cliff looms. Ken Goldstein, an economist at The Conference Board, discusses the presidential election, the waiting game between consumers and companies, shrinking global markets, and where the economy of the Southeast United States fits into the picture.

Global Corporate Xpansion: Highlight where the U.S. economy is heading toward the end of the year in regard to the presidential election, when everything seems to come to a halt; and detail the fiscal cliff we are hearing so much about.

Ken Goldstein: Businesses and consumers are on auto pilot until the election. We have an economy that is a) growing; b) it is in little danger of falling back, with one exception, the fiscal cliff; and, c) it is less likely that the economy will pick up from this very slow pace.

Where are we? Consumers who are spending are doing so cautiously. They are still waiting for businesses to hire before they start to spend more. And businesses are waiting for consumers to spend more before they hire. So we are where we have been for three years.

In regard to the fiscal cliff, let’s clarify what it means. If the U.S. Congress doesn’t do anything now, based on what they have done in the past, very severe cuts in spending take place at the end of this year. Certain increases in tax rates go into effect at the end of this year — if they don’t take any action.

What we think we know is that particular parts of this program, the extension of the unemployment benefits; as well as the tax holiday we were given when this program went into effect, are expected to end this year, without government action.

We will be stuck in the slow lane. If anything, the speed limit will be a little bit higher in the Southeast than for the rest of the country, but not really enough to make that big a difference.

Both the Democrats and Republicans are willing to let those two pieces go. So that part of the cliff will happen. Because they will go into effect, more money will come out of our pockets after the first of the year. Fewer unemployment checks will go out after the first of the year.

The immediate impact will cause the economy in first quarter 2013 to grow a little more slowly.

It is the rest of the program; the cuts in defense and other areas, as well as tax increases … if they do go into effect, could indeed cause the economy to almost stall out for a quarter or two.

We don’t know what will happen in the presidential election. And based on the state elections, we don’t know if the parties are going to agree to keep us from going over the fiscal cliff.

Going back to consumers and businesses, the more fundamental aspect in the waiting game between where consumers and businesses are is that there is simply no offset in terms of the industrial core of the economy to really jump start this economy.

Keep in mind, all of this is taking place against strong headwinds that are coming from abroad, not just Europe, but also the much lower growth in Asia — and not just China. Lower growth rates are also true in some of the Latin American economies, and now, we are finding out even some of the African economies.

The domestic and global headwinds make it difficult for this economy to grow by more than 2 percent in 2013. And in this fourth quarter of 2012, we might not grow much more than by 1.5 percent.

By the first quarter of next year, with only a limited partial cliff, we might slow down to 1 percent. By the second half of the year back, with our without a fiscal cliff, we could be back to growing at 2 percent. If we get really lucky, perhaps by 2.5 percent.

Given all of this, and we have spoken about this many times, there is no such thing as a U.S. economy. It is a combination of what is happening in the nine different regions of the country. That is what tells us the economy is not falling back but is improving slowly, more so on the West Coast, which was the most depressed part of the economy for the last three-and-a-half years.

GCX: Where does the southeastern United States fit into the forecast?

Goldstein: It turns out in terms of the Southeast, where the problems weren’t quite as bad, and there are exceptions, there is improvement. Perhaps this is a better than average region. When we look at the Southeast we are talking about a large area, from Delaware down to the Florida Keys, across to El Paso, Texas.

The western end of that is doing much better … Texas, Oklahoma, Louisiana and Arkansas, because of what is happening in the energy sector, as well as trade with Mexico, which has been doing better than the United States

In the Southeast, in terms of geography, you have pockets that are improving, such as Georgia, Kentucky, and some parts of Florida.

In terms of sectors, certainly the auto industry, the transplants [foreign OEMS] that have moved to this part of the country over the past few years, are doing well.

It would be better for some parts of this region if international trade were to pick up. One of the things that happened between 2011 and 2012 is that trade used to be positive for the country and the region; right now it is a drag.

Going forward, and again we are looking at a better economy in 12 months for the country as a whole; the Southeast will do better than that. Why? Part of the reason is because of the increases in new housing. The Southeast region still makes furniture and all of those homes will need some new furniture, which will be a boost to some parts of the Southeastern economy.

There are several factors underway in regard to the 2013 economy.

One thing we need to mention is the weather because we have seen a lot of drought and heat this summer. We don’t know if that will continue into another growing season. One of the things that will hold back the overall economy, as well as the Southeast, is the rising cost of food due to the drought and heat, whether we are talking about cereals, vegetables or meats.

GCX: What can businesses anticipate going forward?

Goldstein: Businesses are waiting on the consumer. They are waiting for firmer answers about what the tax rates will be. The financial sector is another factor, which is a bit more important in the Northeast than the Southeast. All of the problems we are still dealing with in the financial sector make it difficult for households and for some businesses to get funding. This is more the case for smaller businesses than mid-cap or large-cap companies.

Even for companies that are experiencing some growth and revenue, getting capital during the next six months will be difficult.

We will be stuck in the slow lane. If anything, the speed limit will be a little bit higher in the Southeast than for the rest of the country, but not really enough to make that big a difference.

Ken Goldstein is an economist with The Conference Board, and can be reached by e-mailing ken.goldstein@conference-board.org. The Conference Board is a global, independent business membership and research association working in the public interest. The board’s unique mission is to provide the world’s leading organizations with the practical knowledge they need to improve their performance and better serve society. The Conference Board is a non-advocacy, not-for-profit entity holding 501(c)(3) tax-exempt status in the United States. Among its services, the organization publishes information and analysis, makes economics-based forecasts and assesses trends. To learn more, visit www.conference-board.org.

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About the author: Rachel Duran

Rachel Duran is the editor in chief for Global Corporate Xpansion. Contact her at rduran@latitude3.com.

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