You know the old saying that there are few certainties in life except for death and taxes. But we live in a time of particular trepidation – just when it seemed like business conditions were improving and sustained growth was possible, a string of bad economic news of late has us pondering the future with a more dim view.
Mind you, there has been good news – the automotive industry in the United States has made a nice comeback and there are indications that our housing market may finally be firming up.
But the dark clouds never seem to fully subside, creating an aura of uncertainty in the minds of business leaders, who even at the beginning of the year foresaw an improving revenue picture but not a corresponding move to hire more people.
I have purposely avoided writing much about the European debt crisis, largely because it has dragged on and on with little resolve. But now I think there is good cause to pay attention to what is happening over there, as it can and probably will come back and bite us over here.
Economists are debating the degree to which the slowdown is temporary or a reflection of fundamental economic weakness. In short, they don’t really know, which means CEOs in boardrooms don’t really know, which translates into uncertainty. All I know is that uncertainty is never the friend of capital investment.
And that was the message that I tried to convey this past week to Oklahoma Southeast, a nice and hospitable group of economic developers from that region of the state. I was among a group of site selection consultants who were invited to spend time on the Choctaw Nation. It was a very pleasing affair and I learned much about the region.
One of the highlights of my visit was a round-table discussion (minus the round table) in which the economic developers wanted to hear the consultants’ take on trends and the future.
Afterward, I felt a bit guilty, because I was the only consultant to use the “R” word, suggesting that what happens in Europe, possibly in the next few weeks, could dictate whether we have any sort of growth or lapse into another extended period of stagnation and pain. (I also lamented the trend of manufacturers abandoning in-house training in favor of farming it out solely to community colleges.)
Most of my remarks concentrated on the big picture, as I left the suggestions at the micro level to the other consultants. I mean, how many times and different ways can you say be responsive to requests for information and build a good website? Closer to the ground, I told the locals to concentrate their efforts on helping their existing industry, as that is where the jobs are and it would be unlikely they would be recruiting much in the near term.
None of the other consultants threw anything at me, which was nice.
But the fact of the matter is that while I remain bullish on the future of the United States for the long-haul, I believe that we are in for a bumpy ride for the next several years. Furthermore, I see no convincing evidence that a re-shoring trend will create a manufacturing renaissance with millions of more jobs created. Certainly, there will be some re-shoring and resulting job creation, but it will not be the tidal wave as some pundits predict.
That is not to say that we should not try to do our best to develop a national strategy to help our domestic manufacturing sector. Manufacturing, more so than any other sector, is key to building and sustaining wealth and stability in this country for a wide variety of reasons. I won’t go into all those reasons here and now, because I have bored you in past blogs by doing so.
But I do want to go back to Europe for a moment or the Eurozone, if you want to talk like an economist or an all-knowing consultant. (Kids don’t try this at home.)
President Lyndon Johnson could not fathom how a “damn pissant little country” – his reference to Vietnam – could prevail over the most powerful country in the world. Well, we all know how that turned out.
I will not refer to Greece in such demeaning terms, but you still have to wonder how this country, never a source of economic weight in our times, could have such a massive effect on the health of a global economy. But apparently some postulate that how goes Greece could have a huge influence on how goes Spain and Portugal and Italy, where bankers are increasingly nervous about their level of debts and a psychology that can produce a run on the banks.
Spain is the latest and greatest firestorm. A bailout for Spain, reeling from a recession and the bursting of a property bubble, may dwarf previous rescues. So far, European governments (mostly Germany) and the International Monetary Fund have made 386 billion euros in loan pledges to Greece, Ireland and Portugal.
But Spain’s economy is more than twice the size of those three countries combined. Spain may receive as much as 100 billion euros ($126 billion) in a rescue of its banks, according to El Mundo, the largest digital newspaper in that country. David Mackie, an economist with JPMorgan Chase & Co., says aid for the Spanish government and banks could total 350 billion euros.
Spain’s intention to request external financial assistance is “the most significant and alarming development in the two-year-old eurozone crisis,” said Nicholas Spiro, managing director of Spiro Strategy in emailed comments.
“One of the two southern European economies that matter most to the future of the eurozone, and the bloc’s fourth-largest, is no longer capable of managing its own financial affairs. Two years after Greece went bankrupt, Spain is now flirting with insolvency,” he said.
In my book, flirting with insolvency means flirting with recession in Europe, which could mean a global slowdown in demand.
Of course, this is all too important to us because we sell stuff to Europe. When the economies there sputter, it means less demand for our manufactured exports, which have been a key driver to our economic growth, will also sputter.
U.S. exports to the 27-nation European Union fell 11.1 percent in April to $22.3 billion, but for the first four months of 2012 were 3.5 percent above the same period last year. The EU was the United States’ second-largest export market last year.
Already, some American companies are feeling the adverse effects of the European debt debacle. Ford will likely lose between $500 million and $600 million in Europe alone this year, according to Thomson Reuters,
“I think we’re going to see a focus, again, on the macro-economic picture,” Brian Lazorishak, portfolio manager with Chase Investment Counsel, told MarketWatch. “There’s some U.S. economic data coming out. Everybody’s also on hold, waiting for the next shoe to drop in Europe.”
And that’s the message that I wanted to convey to my economic development friends in Oklahoma – that corporate America is largely on hold, waiting for clearer signs on what the future holds on the world stage. I think it explains why U.S. employers added just 69,000 jobs in May, the fewest in a year and the third straight month of weak job growth.
With the backdrop of Europe teetering on the edge of recession, at home, American companies are unsure of what Congress will do, if anything, about taxes and spending in coming months. And this uncertainly will mean that most companies will simply sit on their hands.
From the standpoint of business, this goes beyond the fundamentals, but becomes a crisis in confidence. Corporate America sees Washington as a broken and removed place, incapable of making the hard decisions that must be made. For some, the ultimate blame for the dysfunction lies with the White House. For others, it is highly-partisan, do-nothing Congress at fault.
I think it is becoming increasingly clear that if the presidential election boils down to a referendum on the economy, President Obama may very well be vulnerable. That is not partisan politics talking, but merely an observation from this writer on how this election may be decided. If the voters take the viewpoint of a baseball manager, they just might yank their starting pitcher from the mound in favor of a reliever.
The yes-we-can expectations in 2008, particularly with the independents who so often decide such elections, may have run the course of no he didn’t in 2012. Whether that is a fair assessment or not depends on your point of view. Certainly the Republican Party has veered far to the right from where it once was, despite the fact that Mitt Romney is no deep-down right winger.
I’ll not attempt to persuade or dissuade you on the left, right or middle on presidential politics because A) you can make up your own mind regardless of anything I say and B) I still might be in the undecided camp. I can say that whichever candidate is elected, neither pose a danger to the fate of the republic. Indeed, both men are moderate in temperament and have a depth of analytical intelligence, despite their sometimes sordid attempts to placate their bases.
But essentially it comes down to this: President Obama has to explain to voters what’s gone right these past four years if he is to get another four years in office. And he must contrast his views to that of Romney.
But if it comes down to a referendum on the economy, Romney, the technocrat, likely wins. If it is a referendum on contrasting ideas, Obama, the professor, likely wins. It would appear that Wall Street money, which backed Obama in the last election, will favor Romney.
And as odd as it might seem, what plays out in Europe and how that affects our economy may determine who the next president may be. Those are things that are largely outside the hands of both men. Like us, they can only sit back and watch.
And pray. That is something that the good folks do in Southeast Oklahoma. Maybe they should try that in Germany.
Dean Barber is the principal/owner of Barber Business Advisors, LLC., a site selection and economic development consulting firm based in Plano, Texas. He can be reached at 972-767-9518 or at email@example.com Please visit our website at www.barberadvisors.com