Psst … here’s, well, not exactly a secret, but at least a marker to look for that signals economic recovery.
“Once you see signs that people are going back to work, that’s usually a sign that the recession is winding down,” said Tom Zwirlein, director of the Southern Colorado Economic Forum and a professor of finance at the University of Colorado at Colorado Springs.
Zwirlein was the keynote speaker at an economic forum hosted by Adams Bank & Trust at Cheyenne Mountain Resort.
But until unemployment declines, it’s best to keep the faith with other, smaller signals of recovery, such as business inventory.
“This is sort of a good news story,” Zwirlein said, with his archetypal dry wit and understatement. “Businesses have dropped their inventory. But as we pull out of the recession, people will start buying, and merchants will have to buy more inventory, which means they’ll hire more people.”
On the other hand, “in this country, we do spend a little too much. But people have hunkered down a bit and are saving more – so that’s good. We cannot continue to consume, consume, consume as a society.”
As for our national monetary base, “pretty dramatic growth” can cause inflation. Currently, inflation is “tame,” but when the economy rebounds and consumers start, ahem, consuming again, it could very well cause inflation.
“From 2000 to now, we’ve seen how people have gone out and spent way too much and bought houses they couldn’t afford,” Zwirlein said. “The percentage of household debt to disposable income went record high.”
Then the stock market failed to continue performing in a manner that investors had unwittingly grown accustomed to.
“The decline can be very steep in a bear market,” Zwirlein said. (Remember I warned you that Zwirlein has mastered the art of understatement.) “Perhaps we’ve reached a bottom – we’ve even had a little bit of an uptick recently. But it takes a long time to pull out of a bear market. We’re looking at four to five years before it goes back to the high of October 2007.”
Local economic indicators are mixed.
The Pikes Peak region is above the national and state averages, with unemployment at 8 percent. “I don’t think we’re out of the recession, yet,” Zwirlein said.
Real estate is “doing OK,” and will recover “just fine” after the recession ends.
Although home sales activity is much slower than a few years ago, there has been a slight uptick during the last few months.
“And these historically low interest rates will help home sales,” he said.
The industrial market has had two years and one quarter of negative absorption.
For the first quarter of 2009, weighted average sales per square foot for retail buildings “doesn’t look too bad,” Zwirlein said. “But shopping centers have dropped dramatically – it’s looking to be a tough market at the moment.”
And don’t hold your breath for American Recovery and Reinvestment Act to solve a myriad of problems.
“The impact is relatively short-lived with these one-time expenditures, especially if you spend them on the wrong things,” Zwirlein said. “And people expect that money to keep coming. I’d like to spend the money on things we can see – like infrastructure – tangible things.”
For instance, locally, people like to see the Pikes Peak Rural Transportation Authority signs on construction, he said. People want to see what their money is being used for.
The Feds, however, are spending a lot of money and not decreasing unemployment “all that much,” Zwirlein said. “They estimate that baseline unemployment will be 9 percent in 2009, but if the stimulus kicks in, it could be 7.8 to 8.5 percent. The things that come out of the (Congressional) Budget office – well, it takes some ‘splaining.”
Their mindset seems to be, “Let’s see how the economy looks today compared to a full-employment economy,” he said. Without the stimulus, we are 7.5 percent below potential gross domestic product. If ARRA works, the low and high estimates indicate the economy could be 4 to 6 percent below potential GDP.
And just where is all that ARRA money going?
A little bit here, a lot there, and don’t confuse ARRA with the Troubled Asset Relief Program or the Term Asset-Backed Securities Loan Facility.
“TARP and TALF are separate – ARRA is just your basic $787 billion stimulus package,” Zwirlein said. (More of that dry understating going on.)
He approves of the ARRA money being spent on alternative energy, science and education, but some of the other categories, suffice it to say, he doesn’t exactly applaud.
As for higher education funding for Colorado, “I should be happy about that – but it will only cover up the problem the state has with higher education for one year,” Zwirlein said.
Meanwhile, back at Uncle Sam’s place, the national debt is 72 percent to 75 percent of an entire year’s GDP in this country.
“If they’re raising taxes and not spending the money wisely, then they’re wasting the money,” Zwirlein said. “And they ought to return that money to the citizens by lowering taxes.”
Rebecca Tonn covers banking and finance for the Colorado Springs Business Journal.