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  2012 a Good Year, but Not a Boom Year, Economists Note
2012 a Good Year, but Not a Boom Year, Economists Note

By Steve Viuker

Economy-watchers have a lot to keep track of in the coming year – the euro crisis overseas, the U.S. housing market, job growth and the Fed’s low interest rate policy. At a Jan. 17 conference held at Hofstra University in Hempstead, Long Island, an economist and a business journalist/professor interpreted what that may mean for the finance and business sectors in New York state this coming year. And “may” is the operative word.
The conference was sponsored by the Association for Corporate Growth. The featured speakers were Dr. Irwin Kellner, chief economist, MarketWatch.com and former chief economist for North Fork Bank, Chase, Chemical and Manufacturers Hanover, and Greg David, director of the Business and Economics Reporting Program, Graduate School of Journalism, City University of New York. David also served 25 years at Crain’s New York Business as editor and editorial director.
Before an audience of 125, 45 of whom were bankers, Kellner cited many reasons to believe that 2012 will be a bad year for the economy, due to political gridlock and the euro situation, about which he is particularly pessimistic. “The euro is not long for this world and had no reason for its being, given the way it was constructed,” he said. Stateside, in addition to a problematic housing market, consumers dipped into meager savings to finance holiday purchases, indicating either high debt loads or maxed-out credit cards, he said.
However, those who prepare for a good year – not a boom year – will be very well rewarded, he continued. “Businesses are less pessimistic. Many were surprised how well the holiday shopping season went. Surveys show confidence higher than in the past three to four years. Hiring is up and jobless trends are working their way down. Jobs in the private sector are growing nicely and business inventories are lean.”
Kellner concluded on a plus note – gas and heating prices are down this year. He also predicted that the housing market will bottom out this year. Long Island housing prices are down one-third from 2006-2007 prices. Broker fees are down to 3 percent and mortgage rates are at their lowest since the 1950s.
Election years are usually good years for the economy, although not necessarily for the stock market, he noted. “The political gridlock was broken last year when President Obama finally figured out how to deal with the Republicans. He put them in a box and they had to pass his programs. I would look for the economy to grow in 2012 by three percent,” he said, adding that most economists believe the economy grew by that percentage in the fourth quarter of 2011.
Greg David noted that while New York City lost 137,000 jobs in the recent recession, “it was the mildest downturn in the history of modern New York.” Critical to this relatively soft landing is the several hundred million dollars in TARP money that came directly to New York City-based banks, which he cited as the city’s most important industry. With the Fed driving interest rates down to zero, and Wall Street profits soaring, “Many people who thought they were going to lose their jobs were kept employed. And bonuses and salaries remained higher than originally expected. Tourism thrived during the recession. And because the dollar was weak, New York continued to be a destination of choice for European tourists,” he said.
However, the bailouts and the low interest rates were a temporary reprieve, he said, and the adverse consequences will be felt in state tax revenues. Post-crisis regulation will ultimately have an effect on state tax coffers. Before the financial crisis, Wall Street accounted for 20 percent of all state tax revenue – now, it’s 14 percent and headed lower, without another industry to fill the gap.
Since the recession ended, the city has gained nearly 82,000 jobs. Northern suburbs, such as Westchester County, have been adding jobs. However, Long Island has seen four consecutive years of job losses and is beset by high costs, including public-sector costs. David observed that the fiscal 2013 state budget proposed by governor Cuomo has the first year to year decline in state spending since the 1990s. The budget’s 2 percent cap on local property tax increases will, over time, cut down public employees’ compensation, but the governor didn’t deliver on pension reform, he noted. State pension costs now exceed $8 billion in New York state.
On Jan. 25, a bit more than a week after the conference, the Fed indicated it will keep short-term interest rates near zero for almost three more years. Long term interest rates should remain steady; if not a down a bit; the Fed also indicated it might revive a bond-buying program to lower long-term interest rates.
The Fed’s changed stance on guidance may be an incentive for banks to make longer-term loans available to customers due to the low cost of funds, The Wall Street Journal reported on Jan. 26. But low rates also limit profit margins on loans, and offer no optimism for savers, the Journal article added. 


Posted on Wednesday, February 15, 2012 (Archive on Tuesday, May 15, 2012)
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