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Friday, Dec. 19, 2014

Possible federal shutdown cited as threat to economy

Sunday, September 29, 2013

MURFREESBORO -- A government shutdown resulting from battles over the federal budget could be harmful for the economy, said speakers at Middle Tennessee State University's annual Economic Outlook Conference.

"This is the wrong time to have this happen," said Dr. Donald Ratajczak, professor emeritus of economics at Georgia State University, a regular speaker at the annual event. There are signs of improvement in some areas of the economy, he said, but a battle in Washington could send things headed in the wrong direction.

Reform need

The keynote speaker for the annual conference was David Darst, managing director and chief investment strategist for Morgan Stanley. Darst said that structural reform in five key areas is needed to improve the economy:

*Savings and investment

*Education and infrastructure

*Debt and deficits

*Societal disparities and generational realities

*Value of money and the global monetary system

Darst said that improvements in education are the responsiblity of parents.

"Education is parents," he said. "School is the icing on the cake, not the cake."

Credit rate threat

Ratajczak said a government shutdown and battles over the debt ceiling could affect the nation's credit rating. Past disputes have had the effect of increasing the interest rates which the nation must pay its creditors, and thereby increasing the nation's debt load. In addition, government shutdowns have built-in expenses of their own.

"We didn't lower the debt by battling about debt limitation," said Ratajczak. "We raised the debt by battling about debt limitation ... We don't save money by shutting down the government. It costs money by shutting down the government."

A shutdown could also affect consumer confidence going into the holiday season and just as companies are going into their end-of-year business planning process.

GOP effect

Ratajczak said that if the Republicans are perceived by the public as responsible for the shutdown, it could be disastrous for the party, as it was during a similar shutdown in 1996, which cost the GOP congressional seats during the 1998 mid-term elections.

Some GOP lawmakers, both those who oppose a shutdown and those who prefer a shutdown to compromise, have said they will vote their individual consciences regardless of what the GOP caucus decides as a whole.

Ratajczak predicted that there will be a shutdown, but only a brief one.

He said that, regardless of one's political beliefs, there is little argument that Washington "is not working right now."

"With Washington dysfunctional, who knows how they'll solve the problems?" he asked.

Debt, not deficit

Dr. David Penn of MTSU's Business and Economic Research Center, another fixture of the annual conference, reported on local economic trends, and agreed that the battles in Washington weren't helpful.

Ratajczak said that, contrary to popular perception, the federal deficit -- the annual difference between income and expenditures -- is not growing, and hasn't grown in several years. The debt -- the total amount owed by the government -- is growing. If America defaults on its debt obligations, it would be devastating to those who hold federal bonds or securities.

Ratajczak said there are signs of improvement in the automotive industry. The industry isn't yet returning to the days when customers automatically bought a new car every few years, but some consumers have decided it's time to trade in the cars they've held on to during the recent hard times.

Careful spending

Many families are still struggling, however. Young people are finding it hard to get work and begin paying off heavy student loans.

"Guess what? There's not a lot of adults buying new homes," said Ratajczak. Many are remodeling or expanding current homes in hopes of selling them in a few years, rather than trading up.

Penn said this trend was reflected in Tennesse statistics. Population is increasing, but the total number of households isn't increasing as quickly -- that means more people per household, in large part due to young people who haven't moved out or have moved back in.

The back-to-school shopping season was flat for retailers, said Ratajczak, and many retailers have too much inventory and over-hired personnel in hopes of better sales.

State economy

Penn gave a report on the specifics of the Tennessee economy. The Nashville Metropolitan Statistical Area (MSA) is performing well, although Tennessee as a whole is slowing slightly due to weaknesses in the export market.

Non-farm employment is growing by 1.7 percent per year in Tennessee, and the state could reach pre-recession employment levels in 12 to 18 months, he said. However, he said the unemployment rate will be the last thing about the economy to improve.

"Job creation is booming in the Nashville MSA," said Penn, although one speaker during Penn's question-and-answer period pointed out that wage growth isn't as robust, indicating that some of that employment is in low-wage jobs.

Government employment has been falling since 2010, Penn noted, which makes the overall job growth even more impressive.

Bedford County saw 5.9 percent private sector job growth, according to Penn's figures.

Look south

Darst pointed out that America has had far more success in its business relationships with nations to the east in Europe and to the west in Asia than it has with Latin American countries.

He noted that Mexico now makes more automobiles than the big three U.S. automakers produce here, and makes more smartphones than China. He said that America's growing Latino population is an opportunity which can be used to our advantage, but only if they're embraced and incorporated.

"We need to learn not to Quebecify this country," he said, referring to the one French-speaking Canadian province.

Award given

During the conference, Joey Jacobs, an MTSU alumnus who is chairman and CEO of Acadia Healthcare, was presented with the annual Jennings A. Jones Champion of Free Enterprise Award.

The conference, sponsored by the Jennings A. Jones Chair of Excellence in Free Enterprise, the Business and Economic Research Center, and the Weatherford Chair of Finance, moved back on to the MTSU campus this year after several years at the Embassy Suites Hotel. The event was held at MTSU's sparkling new student center.