Reality Check On The Economy: Assets And Liabilities
Are you holding your finger up to the economic winds to provide you with a good sense of direction for your business?
Gauging the direction of the breezes has been tough and the low-hanging fog brought on by the dysfunction in Washington has made it even harder to get a sense of direction.
Let's look at recent news as if it were a balance sheet.
On the assets side:
• Home sales in Massachusetts continue climbing upward, leading industry watchers to conclude that we're looking at the beginnings of a sellers' market. The median selling price of a single-family home in Worcester County rose nearly 2 percent in January over the same month in 2012, and more than 11 percent in the city of Worcester.
• The commonwealth's output of goods and services rose 2.1 percent in 2012 while employment grew 1.6 percent, according to MassBenchmarks, a co-production of the UMass Donahue Institute and the Federal Reserve Bank of Boston.
• MassBenchmarks' outlook for 2013 is also positive. It cited the real potential to boost exports to China and Europe, a plus for Central Massachusetts given the concentration of manufacturing in the region.
And on the liabilities side:
• Barring an 11th-hour agreement in Washington to avert the billions of dollars in so-called “sequestration” cuts, the federal budget ax will fall hard on the Bay State in the form of cuts in defense, education and health research, which will impact several defense contractors, as well as the University of Massachusetts Medical School, and many organizations that rely to varying degrees on that revenue stream. In fact, MassBenchmarks says, the state's economy depends disproportionately on sectors that will be hard hit by these budget cuts.
• There's no clear indication of what consumers will do. While consumer confidence on the national level soared in February, according to The Conference Board, it fell in January in Massachusetts amid job market uncertainty and concerns over stagnant income levels, according to Mass Insight Global Partnerships.
• Office vacancy rates in Worcester and along the Interstate 495 belt remained stubbornly high at the end of last year, although industry watchers said they were seeing a gradual improvement.
A wild card looms at the state level, as the Legislature weighs Gov. Deval Patrick's plan to raise $1.9 billion in annual tax revenue, primarily to pay for improvements in education and transportation infrastructure. While those may be worthy investments for our economic future, the state must carefully consider whether a hike in the state income tax from 5.25 to 6.25 percent, coupled with a drop in the sales tax from 6.25 percent to 4.5 percent, will cause undue harm to both consumers and businesses. A booming economy would remove some of that sting, but there's no “boom” on the horizon.
The bottom line? Uncertainty breeds more uncertainty, and while many of our economic troubles can be tied to the slow and unsteady recovery from the deep recession, others are self-imposed by a dysfunctional or overly aggressive government. Political leaders must tread softly, and begin to play a team game if we are to have any hope of managing ourselves back to a stronger economy. While the winds are inconsistent and hard to read, the ship is sailing steadily. As long as the crew makes the right moves, it should pick up speed in the months ahead.
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