Guest post by Richard Gray, Senior Vice President, Commercial Lending, Bank of American Fork
Now that the U.S. has enjoyed three years of uninterrupted—though slow—economic growth, it’s a good time to look at the economy and see what the current assessment means for Utah businesses. Reading economic indicators is a part of looking to the future, but perhaps there is more to it than just reading the graphs. It would do well to consider scenarios and look for ways to read the signs with open minds and a willingness to act.
Utah’s economic recovery has been underway and at the end of 2012, employment for the year was up 3.3 percent, an increase in 40,000 jobs after 26 consecutive months in job gains. In Utah, average annual pay is up 2.0 percent in inflation-adjusted dollars. New auto and truck sales were up 17 percent and single-family home construction was up over 30 percent. Some are still pessimistic about national unemployment rates, which are declining only slowly, but other economic factors prove that jobs are on the way.
On Friday, February 1, for the first time since October 2007, the Dow closed above 14,000. This five-year high followed a five percent gain in January, the best start to a year since 1997. Analysts say the data shows that the economy’s recovery is still on track, though growth is slow.
This has been the weakest rebound since World War II. Economic growth has averaged less than 2.25 percent since the recovery began and is estimated to have slowed to 1 percent. Some economists point to budget problems as an impediment to fast growth, but some of the deficit is just a natural result of a weak economy. Though the steps to decreasing the deficit seem to be a drag on the economy, steady growth is the ticket to a stronger economy.
This is the good news: the growing economy will eventually be stronger than pre-recession. Some of the wealth that seemed to be prevalent before the recession was propped up by easy credit and runaway spending. The growth following this recession is real, with credit card debt down 16.5 percent since its peak before the recession. This means that households can increase their spending as the economy is improving. Reports show some of this is already happening: imports and exports growing and home prices are increasing.
Even though the government reported disappointing results in the last quarter of 2012—the U.S. trade deficit widened—many note that there is a good side. The pickup in imports and exports show strength in the economy as momentum rises. Not only is the economy built on cycles of recessions and booms, but there are smaller cycles within. Demand rises and I am hopeful that manufacturing rates will increase to catch up.
In Utah, residential construction activity is still down, but beginning to increase. Real estate sales of existing homes have pretty much recovered, and nonresidential construction activity is not far behind. It is expected that by 2015, the value on permit authorized nonresidential construction will be back to its historic average. It will take a few more years of solid employment growth for commercial vacancy rates to make it back down to the 2007 levels.
With economic indicator levels coming up from a very low base, the increases that have happened are significant.
2013 is expected to bring the following:
Employment: Utah’s rate is lower than the national average, but the stronger payroll gains and average annual pay indicate that an increase in jobs will continue.
Housing: Economic forecasters say an improved housing market will be a main driver of economic growth in 2013, despite the prediction that there will be other areas to slow overall economic growth.
Banking: Banking continues to consolidate, with the number of banks reduced but most still have money to lend. Many banks have loosened standards to so that increased credit will power both business and consumer spending.
And since attitude drives behavior, enhanced economic growth soon follows. Employers will believe they can hire, invest and expand; the unemployment rate will decrease; households will re-establish income through employment; and households will have more money to put back into the economy. It will happen when media headlines report the positive sings and people believe that the recovery is real and work to be a part of it.
This article first appeared in the Feb. 18 issue of The Enterprise.
Richard Gray is a senior vice president for Bank of American Fork, which is an Equal Housing Lender and Member FDIC. Richard is the SBA loan department manager and commercial loan department manager for the bank, and manager at the bank’s Murray branch. He serves on the board of directors for nonprofit Kostopolus Dream Foundation and was the chairman for nonprofit Utah Microenterprise Loan Fund, Salt Lake City.