Southeast U.S. Economy Driven by Industry Diversity
Interview conducted by Rachel Duran
Editor’s Note: This interview was conducted May 6, 2014. For the latest information in regard to the U.S. economic forecast, visit www.conference-board.org.
Consumers and businesses alike are cheering a stronger economic performance in the second quarter of 2014, and embracing the favorable outlook for the remainder of the year. The first quarter was a bit weak due to the bad winter that affected much of the country, from Chicago to New York to Boston, and as far south as Atlanta.
As consumers and businesses play catch up in terms of purchasing and delivering goods, they have discovered 2014 will be a better year economically than 2013; and may even be a better year than 2015. The economy will remain strong in 2015, but will most likely not sustain the increases in activity underway this year.
As for how the U.S. Southeast will fare, much depends on the activities of the niche industries found in this region. Ken Goldstein, an economist for The Conference Board, details what’s in motion in the U.S. Southeast, and what businesses can anticipate from a stronger performing economy — as well as the dynamics to watch for in regard to pricing power.
Rachel Duran: Various industry reports in regard to supply chain, purchasing, and so forth, point to a stable 2014. What do The Conference Board’s leading economic indicators say?
Ken Goldstein: There are two big trends in the economy now. We have seen a little bit, and we will see a lot more catch up from a very bad winter. Not only in Chicago and New York, but in areas such as Atlanta, which was hit by weather the city hasn’t seen, isn’t used to, and isn’t prepared for.
One of the impacts of the difficult winter was people from Atlanta up to Chicago or Boston either couldn’t get to the stores or malls, or even if they shopped online, couldn’t get goods delivered because of the delays in deliveries due to the bad weather.
So coming off a weak first quarter, we are seeing a stronger second quarter. The second half of the year will not be as strong as the second quarter, but we will still see a very good economy.
Secondly, beyond this quarter-to-quarter business of playing catch up, this is the year when we finally see the economy start to pick up. This is the year consumers will say, ‘this is what we have been waiting for.’ Not only in terms of consumers shopping for goods, but workers shopping for new jobs.
We will see this in the economy across the board, certainly a little more of it in the Northeast, Midwest, and even in the Southeast. Again, this is because of how bad the weather was, how long it was bad; and the extensive part of the country it covered.
Duran: Why are these regions expected to perform well?
Goldstein: It is due to the release of pent up demand. We will start to spend out of that as we move into 2015. We won’t sustain this momentum; however, this doesn’t suggest the economy is going to fall apart in 2015; it just may not be quite as good as 2014.
Duran: What is on the horizon for businesses and manufacturers?
Goldstein: Business executives are not spending money on their own assets or their own capital stock. What they have been doing is buying someone else’s assets and equipment. Over the past 12 months we have seen half-a-trillion dollars spent on mergers and acquisitions.
When we ask business executives why, part of the answer is demand hasn’t been that strong. They say in an economy where final demand is not strong they don’t need to hire more workers, and they don’t need to invest money in expanding or modernizing capital stock.
This is the year where we make that turn, after five years of waiting since the end of the recession; we see the consumer spending money. When the consumer is spending money business has to be busy, hiring enough workers to produce products, and getting the materials they need to produce the products and services that consumers are buying.
If we are on the verge in the second quarter of seeing a pickup in terms of consumer spending, business investment will not trail very long. If we see one, very quickly, we will see the other.
The profile of 2014 includes consumption, business investment and housing — the three pillars of the economy — starting to move, be it catch up and/or pent up demand. The economy will move in a way we haven’t seen in the five years since the official end of the recession.
Duran: Highlight the U.S. Southeast’s economic picture.
Goldstein: The Southeast happens to be a very heterogeneous region. So one example is in northern Virginia, an area which is tied to what the federal government and the military are doing. There are uncertainties in regard to the continued battles over the federal budget, and especially how much is appropriate to spend in regard to the military.
And there is a separate factor in the Carolinas. If housing is going to be a key, the Southeast is one region of the country that will benefit from the construction of new homes; the construction of new apartments; and the construction and sales of furniture. The middle section of the Southeast region looks to really benefit from these activities.
Keep in mind, before we hit the recession, ‘Boom Town USA’ was Charlotte, N.C., and Seattle, Wash. That hasn’t changed.
Separate from that is what is happening in Georgia and in certain parts of Florida, where you have a different economy, one tied to services and tourism. The tourism is not just people from within the United States going to Disneyland, but folks coming up from Latin America to visit Miami.
Duran: In summary, what can businesses expect from the economy in the second half of the year?
Goldstein: Whether it is business or the consumer, this is what we have been waiting for. This is what businesses have been planning for — the turnaround to take hold. This is in terms of staffing, equipment purchases, and building modifications and/or new buildings.
There is one negative in this storyline. We will see a pickup in demand, but not in terms of pricing power.
In the second half of the year it will cost more to add new workers and new equipment; but where is the money coming from because prices will not pick up?
Consumers might like the idea that there will not be sticker shock; but from a business point of view, the question is: where is the revenue? Not the revenue now, but the revenue tomorrow to pay for all of this?
Ken Goldstein is an economist with The Conference Board, and can be reached by emailing email@example.com. 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.
Illustration by David Castillo Dominici at Free Digital Photos.net