By Andy Owens
Published Dec. 6, 2012
A Charleston-area economist said uncertainty continues to hold back the U.S. economy, and the only cure could be decisive action by the government to allay fears of another recession and the impending “fiscal cliff.”
Steve Slifer, the chief economist of Daniel Island-based NumberNomics, gave his forecast during the 2013 Economic Outlook Conference Breakfast on Tuesday at the Daniel Island Club. Slifer said many economic indicators are trending up, including consumer confidence and the opinions of executives about the future.
Along with low consumer debt, a stronger stock market, and with interest rates and mortgage rates so low, everything would seem to be poised for a strong recovery, but it hasn’t happened, and Slifer predicts a modest 2.7% gain in gross domestic product in 2013, compared to 2.0% for 2012. Large businesses also have stockpiled so much cash that they’re considering rewarding investors with extra dividends, he said, instead of investing in workers and expanding physical assets.
“The only conclusion I can come up with is it’s uncertainty,” Slifer said. “If you think there is a slight chance of the economy going into recession next year, why in the world would you want to go out here and build a factory or do something like that? I think you’d think twice.”
The uncertainty for businesses includes the economy, taxes, health care costs and regulatory burdens that might change or create more costs for expanding or starting businesses, he said, along with a budget deal that requires across the board cuts to go into effect in January called the “fiscal cliff.”
“All of this stuff has been imposed on us by government, right, and it’s having an effect in slowing the economy down. But the government created this stuff, it strikes me that they can get rid of it just as easily as the put it in,” Slifer said.
Mathematically, Slifer said, the “fiscal cliff” could throw the U.S. into a recession because the $640 billion that would be cut is 4.0% of GDP, and if the economy grows at 3.5%, then the GDP loses by half a percentage point.
“I don’t think that’s a good idea, and I would say most of you would agree with me,” he said.
Slifer suggested that some of the cuts be allowed to go into effect, such as the Bush-era tax cuts ($200 billion), alternative minimum tax ($100 billion) and defense cuts ($75 billion). The result would be a 2.0% decrease in GDP and would allow the U.S. to avoid a recession if the numbers held up.
“Suddenly, we cut the negative impact of the fiscal cliff in half,” he said. “We can’t have any more Band-Aids. It’s time to really get on with it and start dealing with these longer-term budget issues we have.”
Reach Andy Owens at 843-849-3142. Steve Slifer writes a biweekly column for the Charleston Regional Business Journal’s print edition.