From Daily Planet Staff Reports

Following an economic downturn that has earned the distinction of “The Great Recession,” gross domestic product in the United States could start increasing again in 2010, but the prospect for a steady uptick in consumer spending and job creation is coupled with a caveat, economist James F. Smith said during 10th annual Asheville Metro Economy Outlook on July15.

“The only thing that will really derail the railroad is if Congress spends time passing health reform, financial reform or whatever other crazy one they’re working on instead of getting out of the way,” Smith said.

“Shrink regulation, shrink government, cut taxes — that’s the secret of growth.”

Once jobless numbers begin to drop, consumer confidence will rise, coupled with retail sales, Smith said.

The 80-minute program, which concluded with a 20-minute question-and-answer session, attracted about 200 people at the Diana Wortham Theatre on Pack Square.

James F. Smith

Smith, chief economist for Parsec Financial Management, spent 20 minutes addressing the national and international economic situation. Smith, who has 35 years of experience as an economic forecaster, is billed as one of the few U.S.

economists with experience in academia, government, manufacturing, retaling and trade associations.

The second speaker, Tom Tveidt, research director for the Asheville Area Chamber of Commerce, spoke for 30 minutes, focusing on the local economic situation, which he termed sobering following nine years of relatively upbeat results.

Following 51 months of growth, the four-county Asheville Metro Statistical Area economy lost more than 8,000 jobs in the past year, he noted.

Tom Tveidt

Tveidt pointed out that “this is a major change in our pattern” and that key engines of local economic growth — hospitality, construction, manufacturing and business services — were hit with significant job losses this year. He stressed that only the health-care sector experienced some minor growth.

The migration of people from other areas into the area dropped by 32 percent in 2008, as home values in states such as Florida nosedived by double digits, Tveidt said. As a result housing demand will continue to remain low, compared to recent historical standards.

Smith began by noting that “it’s a lot more fun when we’re talking about” positive things, “when there are no looming threats on the horizon.

“This recession began in December 2007. I’ll explain later why I think it’s already over.”

He then added, “We got some very good news today from the Federal Reserve Board. They told us that, for this year, things look better than they had expected.”

The economy has declined 1.4 percent for the first time since 1982. “But they (the Fed) raised their forecast to my forecast” — 2.5 percent growth for next year, and from 3.5 to 6 percent for 2011. His projection for 2011, he added, was a little less optimistic, ranging from 3.5 to 5 percent, Smith said.

“Two things will not happen,” the economist said. “We’re unlikely to have a (second) Great Depresssion and we’re unlikely to have a great boom.” (He also contended that the Great Depression began in August 1929 and ended in March 1933.)

Wryly, he added, “The best thing we’ve got going for us” is the tendency for politicians to act in ways that ensure “self-preservation.”

To that end, Smith said, “The No. 1 problem is getting the country’s economy moving again and the No. 2 problem is getting the debt down.”

Given the problems he outlined, the economist said, “I’m surprised at health-care reform ... at a time like this.” Smith asserted that, “unbelievably,” the estimated $1 trillion in extra spending for health care reform is being promoted by President Obama and receiving consideration by Congress.

“Two days ago, the U.S. Treasury announced the budget deficit for the first nine months totals $1.1 trillion,” noting that a trillion “is a thousand billion,” a figure he considered mind-boggling. The nine-month figure was released because the U.S. budget year ends Sept. 30.

In contrast, Smith noted that the Bush administration “racked up” a $454 billion deficit during his eight-year term, for which Bush “was tarred and feathered — justifiably.”

Further, Smith said, “We have a stimulus program ($787 billion) that has done nothing,” except, he added with a chuckle, for funds allocated to improvements at Asheville Regional Airport, prompting cheers from the crowd..

Rather than spend the stimulus funds as planned, Smith said the government would do better to give the money to every man, woman and child in the U.S. (The current $11 trillion national debt works out to $36,683 for every American.)

He added, “The stimulus argument is bogus ... If you want stimulus to work, you give the money to consumers” to spend.

Smith said he is concerned that some are projecting another $2 trillion will be spent in stimulus funding — “this time for infrastructure” improvements.

He then cited the American Engineering Society’s projection that it would cost $2.2 trillion to fix major infrastructure problems in the U.S.

Smith lamented that Rep. Charles R. Rangel, D-N.Y., is promoting “the way to pay for those without (health) insurance is be penalizing the most productive people ... In effect, he’s saying he wants less entrepreneurial activity — a really bad idea.”

In returning to his earlier assertion that the recession already has ended, Smith cited Robert J. “Bob” Gordon of Northwestern University, who published an article titled “Green Shoots Or Dead Twigs.”

In Gordon’s view, within three to six weeks of a trough in a recession, then a recovery begins. Thus, “if April 4 holds up, that means the trough of the recession was midnight May 15,” Smith declared.

“Unless the peak of trough was in February, does this mean” better times ahead? Smith asked. No, he said, “we’re going to have very slow growth.”

He noted that the scrappage rate of vehicles in the U.S. is 13 million annually, while Americans are buying 10 million vehicles per year, “so obviously sales will eventually go up.”

Taking a wider view, Smith said, “Industrial production is huring everywhere in the world, including China and India.”

Still, he said, the U.S. has $50.5 trillion in total net worth, which is down $14 trillion from its peak.

“The key is consumer spending,” which accounts for 71 percent of U.S. gross domestic product, Smith said. Ten years ago, the GDP was 67 percent.

“The trillion-dollar question is: Will consumer spending stay at a permanently lower level,” with Americans becoming long-term savers?

Within three to four months, the unemployment rate should be 8.8 percent, Smith said.

As for retail sales, they have been “at a deplorable state” for many months, he noted. The most current figure shows retail sales at 9 percent below a year ago.

In wrapping up, Smith quipped that “this is the 458th panic in U.S. history.”

He said the U.S. remains a strong nation and “we always have come back stronger.”

For further reading that might give citizens a perspective on today’s economic situation, Smith recommended the book, “Manias, Panics, and Crashes: A History of Financial Crises” (Wiley Investment Classics) by Charles P. Kindleberger.

“The only thing that will stop the recovery is if congress passes health care reform and enacts more regulations” on business and industry.

Tveidt then addressed the audience, noting, “I’ve been doing this (forecasting of the local economy) for 10 years.

“The deal was, Jim was going to give you all the good news — and then I’d bring you back down. Hopefully, all of you won’t go out and commit suicide” after hearing Tveidt’s gloomy data.

On a brighter note, Tveidt said, “We’re in fast-moving times” experiencing “seismic shifts in our society ... The waves we’ve ridden on (locally) for the last few decades” are changing permanently.

Rhetorically, he asked, “What the heck just happened?”

Before answering, Tveidt noted that his goal in his presentation is to provide data “to you for decision-making.”

First, he said, “We’re down 8,100 jobs from last year,” following 51 months of job growth that resulted in 7,500 new jobs.
“So this is the most dramatic change in our data, which is through May 2009.

Turning to the jobless situation, Tveidt noted that this data “is a little flakier number” because people eventually give up applying for jobs and are not counted in the figures.

“Asheville always has had low unemployment — below the U.S. and state averages. In 2008, we passed the U.S. and were neck-and-neck with the state.”

He then cited what he termed “a faint hint of a turnaround or bottom,” noting that “national data always is ahead of local data.”
“We’re usually tied with Raleigh and Chapel Hill at the bottom” in unemployment.

In comparing state metropolitan areas, Asheville is in the relative place on unemployment and job growth, dropped three spots in population growth and dropped six spots on home appreciation rate.

He cited four “drivers” of job growth in the area, including health services, leisure and hospitality services, manufacturing and construction. He also said a fifth driver that has emerged in recent years is professional and business services.

Tveidt said this metro area remains strong in the five aforementioned areas, but that “60 to 70 percent of jobs in our area are in health services,” while there have been recent “huge drops in the other four categories.

Lately, he said, 200 to 300 new jobs have been added in the area, as construction has “leveled off ... The free-fall is over.”

Of the job losses, business services lost 3,000 jobs, or 32 percent of the total; manufacturing lost 2,000 jobs, or 21 percent; construction lost 1,800 jobs or 19 percent; leisure and hospitality, 1,000 jobs of 11 percent; and other, 1,600 jobs and 17 percent.

“Seventeen restaurants closed over the last year” in the Asheville metro area, Tveidt noted.

As for sources of population growth, he said domestic in-migration has declined by about 32 percent.

Regarding existing home sales, for which records have been kept since 1996, the area has experienced “record drops,” Treidt said.

As any Realtor would admit, he noted that “the top end of the (real estate) market is pretty dead right now.”

Worse, he said, “There no hint of any turnaround in these numbers right now.

“Building permits are totalling values down to places where we haven’t seen for a decade.”

As for same-home depreciation, there have been big losses in Florida cities of Tampa, West Palm Beach and Miami, although Charlotte has “held up better.”

A rare bright spot for the area, Tveidt said, is the housing affordability index, which shows “there’s definitely been a turnaround, with affordability better in the United States and in Asheville.”

Tveidt presented two outlooks, including the first, which he termed “the safe mode.”

Under his first outlook, he listed the following:

• Wary health services sector, noting that as a result of the push for health care reform, none of the private companies will be investing much in expanding their operations, resulting in a reduction in annual local health- care job growth from from 1,500 jobs to a projected 1,000 new jobs annually.

• Smaller, faster, smarter manufacturing.

• Rebounding leisure and hospitality. “Our numbers are not as bad some our competitors.”

• Smaller housing sector. Fewer people will be moving in.

• Waiting....

In his second outlook, he spoke of the “next new Asheville.”

He noted there are “plenty of things in the pipeline” that could bring growth.

In addition, he said Asheville is adapting an idea to make an “Asheville Way” of a green economy.

“I see it. It doesn’t show in the numbers. It takes time to show up” in the economic data.

On a positive note, Tveidt showed data that indicated that proprietor’s income, with numbers dating back to 1970, indicating that after each recession, proprietor’s income “surges.”