Economic Growth Outlook

The economy never ceases to be a topic of concern and debate. Essentially, there are two layers of discussion–the macro-economy that is what is fussed over in the national news with focus on the fiscal cliff, tax policy and the deficit, and the micro-economy, which I define as the economic circumstances we find ourselves in–our business, our family and our neighborhood. More and more I find that regardless of the national outlook, businesses are recognizing that they can’t let it limit or define them. Leaders are committed to not letting increasing regulations and taxes stand in their way of improving their financial performance. The good news is that the macro economy is the aggregate of micro economies and can be driven by each individual business as it is the sum of all of its parts.

So what do the experts say about the economic outlook? Scott Colbert, CFA and Senior VP of The Commerce Trust Company shared these thoughts:

Bottom line: Subpar growth for the foreseeable future of -1% GDP. If you want to see positive financial results you will have to “beat the market” and take the future of your business in your own hands.

Trends: The S & P 500 has returned to pre-recession levels but many other indicators have not, including consumer confidence, recorded at 66.7%, up from 38.6% in 2008, down from 2007 of 90.6%. As business leaders we have to create an environment of confidence for our employees, our customers and our market. Strategy that drives performance has never been more important.

Drivers: Real GDP is down just about the same amount as Employment. Further, private industry is driving employment gains. Employment will drive the GDP, and it takes successful growth-oriented businesses to have the confidence to hire right now. Are you one of them?

Debt: There are four kinds of debt–bank debt (loans), household debt, business debt and government debt. The report shared that the first three kinds of debt have been mostly “righted” and together represent about the same amount of debt represented by the government. That debt, of course, is what remains an issue and time will tell if it addressed, to what degree, and whether we can recover without incenting inflation. To date, there is NO progress in reducing federal debt as a % of GDP. If interest rates go up, the debt will as well! While the facts are what they are, as business leaders we can’t impact them directly. What we CAN do is drive our own growth and encourage the government to focus on fixing the problem in a sustainable manner.

The Fiscal Cliff: Entitlement spending has grown from 9.6% to 10.5% of GDP. Federal spending is hovering close to 25% of GDP while government income is up, through tax increases, to 16.3% According to our expert, the historical tax rate-the level of tolerance–has been closer to 19% and it is expected that is where income will level out. Macro-economic growth is forecast at 4% which means that the “balance” of income and spending may be easier to bridge than the numbers indicate. The conclusion is that the only logical way to close the gap is to increase taxes while reducing entitlements. One of the largest entitlements under debate is social security. The government has borrowed heavily against it and to reduce the deficit, they can forgive the debt, thus using those funds for other entitlement programs. For business, that means having to address the retirement fears of employees that counted on those funds for their later years. Consider developing motivating programs that drive performance and provide long term rewards for employees. 

After an hour presentation I walked away thinking of a saying I have heard often over the years, and while trite, it is apt. “If it is to be, it is up to me.” In other words, as business leaders we need to work to make a difference in the environment we CAN control–which assures our families, employees and community’s futures, while making our contribution to the macro economy. Most leaders I speak with realize that the solutions will come from us succeeding in spite of the roadblocks that loom ahead. It is time to Harness the Hardship and let it motivate us to succeed!!

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