"If you get your economics from a politician, you get the economy you deserve," said Dr. Joel Naroff, President and Founder of Naroff Economic Economic Advisors, a strategic economic consulting firm, who recently made a presentation on the economy to the Advisory Board and employees of The Victory Bank. "If you listen to the politicians, we are ready to crash and burn yesterday, or from the other side, "happy days are here again. But from my perspective the economy is changing for the better and as a consequence, I am optimistic about the future."
Dr. Naroff offered three main reasons to be optimistic about the economy: The single most important thing that has really changed is the consumer. Consumer confidence has been rising fairly consistently. "Why is consumer confidence rising despite a 7.8% unemployment rate? The single most important factor is job security" Naroff explains. "For the last 5 years people have walked into their companies and worried that they would not have a job at the end of the day and therefore didn't spend money. That has changed now. Businesses may not be hiring but they no longer are firing either. With layoffs down, the fear of losing their job has decreased. As a result, consumers are confident and they are spending money."
According to an October 15 Commerce Department report, retail sales jumped 1.1 percent last month, producing the best two months of sales in two years. Retailers made gains in almost every major category. Sales of electronics and appliances in September swelled to 4.5 percent, in part because of iPhone sales. Sales at auto dealers increased 1.3 percent, the highest in four and half years. Consumer spending is critical because it drives nearly 70 percent of economic activity.
The second reason to feel optimistic about the economy is the housing market. "When the housing crashed it took our economy with it. Housing is incredibly important and economists estimate that for every housing start you get about two and half jobs created. It may not seem like a lot but we will likely increase housing starts by over 175,000 units by the end of the year. That could have supported upwards of a half a million new jobs right there," said Naroff.
The third reason is the finance sector. "The finance sector is healthier and is starting to make money again and banks are making loans at a better pace then a few years ago,' said Naroff.
But it will take time before real solid growth returns. Naroff explains, "The important thing is the weakest sectors are healing and the economy is starting to pick up speed. But the biggest impediment to growth is Washington." The business community is not hiring as many people as it would and they have cut back on spending because they are not sure what tax increases and sharp government spending cuts will come next year if Congress fails to reach a deal to avoid the so-called fiscal cliff. Most business surveys suggest that once the fiscal cliff issue is resolved, businesses will start hiring and investing, consumer confidence will rise and economic growth should increase regardless of the election results.
Joel L. Naroff, Ph.D. is a nationally recognized economic forecasting expert and has received numerous honors. In 2011 he received the National Association for Business Economics Outlook Award as the top economic forecaster. In 2008 he was awarded the Lawrence Klein Award for Blue Chip forecasting excellence. In addition he was named the Bloomberg Business News 2008 top economic forecaster. He was the first independent economist to win the CBS MarketWatch Economist of the Month Award.
An accomplished public speaker, Dr. Naroff is often quoted in the national press, including Business Week, The Wall Street Journal, The New York Times, USA Today, Financial Times and Newsweek. He appears frequently on CNBC, Fox Business News and Bloomberg Television in addition to appearing on ABC's World News Tonight, The Wall Street Journal Report with Maria Bartiromo and The News Hour with Jim Lehrer. For more information, visit www.naroffeconomics.com
The Victory Bank is a locally owned and operated commercial bank headquartered in Limerick, Pennsylvania. The bank was founded to optimize the financial lives of businesses, professionals, and consumers primarily in Montgomery, Chester and Berks Counties. For more information, visit www.thevictorybank.com. Member FDIC