Economist cautiously optimistic for local business community

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Economist Joel Naroff addresses the Ocean City Chamber of Commerce at a business meeting Oct. 17 Economist Joel Naroff addresses the Ocean City Chamber of Commerce at a business meeting Oct. 17.

OCEAN CITY – A national economist offered members of the Ocean City Chamber of Commerce a “pretty upbeat outlook” on the economy, speaking at the Ocean City Yacht Club for the chamber’s annual Business Summit on Wednesday, Oct. 17.

Joel Naroff said he was cautiously optimistic, but “out on a narrow limb” as there are some things out of our control. 

Four years after Lehman Brothers collapsed, which “was just about as bad an economic environment as you could get,” Naroff said conditions are changing, but “we don’t recognize that.”

“As you all know, when we were in the depths of recession not a lot of you were doing particularly well,” he said. Years of “hunkering down, assuming the turtle position” are easing.

Today, he said, conditions and circumstances have changed, thanks to stronger consumer confidence and a rebound in the housing market.

“You’ve got to understand, this is today’s forecast, not yesterday’s, and for sure not tomorrow’s,” he said.

He predicted that the nation could “get back to really strong growth” as long as “Washington doesn’t screw up.”

“If your economic forecast is dependent on Washington doing the right thing, God help you,” he said. “I’m optimistic, but its not spectacular. I’m realistic, we are awfully dependent on Washington.”

National conditions filter down the state and local economies, he noted. The recession ended in June 2009, he said, and close to 3.5 years of recovery is somewhat unrecognizable because business people tend to look at conditions “today versus yesterday, this quarter versus last.”

“I look at this year versus three years ago,” he said.

The president and founder of the consulting firm Naroff Economic Advisors, based in Holland, Pa., advises companies on the risks and opportunities that economic developments may have on the organizations operating environment.

A nationally recognized economic forecasting expert, Naroff has received numerous honors and appears frequently on CNBC, Fox Business News, The News Hour with Jim Lehrer, The Wall Street Journal Report and Bloomberg Television, and on the pages of the New York Times, USA Today, Financial Times and Newsweek. 

He does business commentary for KYW Newsradio in Philadelphia and on national radio networks across the nation.

“They called it the Great Recession, but I don’t know what was great about it,” Naroff said as he painted the economic picture. 

The housing market led us into the recession and will lead us out, he said.

“When you build six years of housing in four years time, you’ve got a problem,” he said. “We had excess supply to begin with and half these people couldn’t afford the mortgage and shouldn’t have gotten it in the first place. They defaulted.”

Housing took a big tumble, but in recent months has seen the highest numbers in four years.

“It’s not strong, but it’s picking up, housing starts are up,” he said. “It doesn’t look good one month to the next, but in a year it’s up 20 percent. Housing is probably the most important sector.”

Credit issues hamper slow, steady improvement, but conditions have improved, which leads to consumer confidence going up, Naroff said.

“The economy is dependent on households being willing to spend,” he said. “In 2009 and 2010, jobs were cut like crazy. In the first half of 2009, we lost 3.5 million jobs. It’s almost incomprehensible.”

He said workers noticed colleagues disappearing and wondered if they would be next.

“You’re scared,” he said.

Five million jobs disappeared, but the bleeding has stopped, he said.

“Day after day, month after month” people are realizing that their job is not as much at risk, Naroff said.

“Consumer confidence is rising, people are beginning to loosen the purse strings,” he said. “They are not irrationally spending, not going back to pre-2007 where you shopped until you dropped, got back up and shopped again, but they are beginning to make big purchases, like a car. Vehicle sales are up. They’re turning in the clunker.”

Tampering his enthusiasm, Naroff noted, is the world economy and national politics.

“Europe is a basket case,” he said, and China’s economy is slowing.

Meanwhile, as austerity hits countries like Greece, America keeps spending.

“Government does what government has to do, waste money and hire people,” he said.

“It’s a hurdle. It hurts.”

A few years ago, credit was nearly impossible.

“Credit offices had two stamps, ‘no’ and ‘no way,’” he said. Today, it’s “no” and “maybe,” as conditions improve.

“It’s slow, but it’s happening,” he said.

Still, he said, businesses are frightened.

“The biggest hurdle is the ‘fiscal cliff,’” Naroff said. “It’s craziness in Washington.

“Why aren’t businesses hiring? They’re afraid of one thing. I call it the Thelma and Louise moment, driving off the ‘fiscal cliff,’” he said of Jan. 1, 2013 when the Bush Tax Cuts, and other tax cuts implemented by President Obama, are set to expire. 

“It’s going to be a major tax hike, along with a lot of cuts,” he said. “This is going to cause a decline and put us into a potentially serious recession.

“This is crazy, it’s madness,” he said. “No sane business is going to do anything until they know what happens. Consumers are sending the message that they are back, but businesses are not willing to expand in this climate.”

If Washington “does the right thing and compromises,” he said, “next year could be really good.”

“Somehow, some way we’ve got to get something done, so we don’t fall off the cliff. If we do, get under the table and pray,” he said.

Naroff warned that stock market could plunge on Jan. 2 if Democrats and Republicans don’t wise up.

New Jersey’s economy “is what it is,” he said, which is mediocre. Housing, he said, will hang over the economy for years to come.

“That’s bad, it’s a cap on growth,” he said. “There’s nothing fundamentally bad about New Jersey’s economy that tells me it should have a 9 percent unemployment rate.”

He predicted that job growth kicking in would bring that down, which would generate more spending.

However, locally the picture is somewhat rosier. People want to come to the shore, but they’re cautious.

“It’s not that people are renting, it’s the additional spending,” he said.

The federal deficit and inflation, he said, are worrisome. Food prices continue to rise.

Nonetheless, Naroff said he remains upbeat.

“If my forecast is right and Washington doesn’t blow it, we’ll be OK,” he said.

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