Crawling from the wreckage
Five years ago, economist Bill Greiner gathered with a dozen or so business-people from Colorado in a San Francisco hotel meeting room and talked about the "long, hard slog" - the sluggish period he and his colleagues could see coming around the corner.
Greiner and his team didn't predict the severity of the economic crisis or how fully it would hammer just about every part of the economy, but the theme they chose that year for their economic forecast has proven - unfortunately - to have stubborn staying power.
During his 2012 forecast talk in Napa Valley in October, the president of UMB's Scout Investment Advisors didn't exactly have jump-for-joy news, but he did offer a glimmer of hope within the next few years.
Just not next year.
Greiner's team predicts the U.S. gross domestic product will be in the black in 2012, but that needle will hover just a smidgen from the red. And the probability that we will suffer another recession - depending upon what happens in Europe - is about 40 percent for the next couple of quarters and as much as 50 percent by the end of 2012, he said.
"We think the economy this year is going to register a 1.2 percent GDP growth rate, as compared to 2.8 percent in 2010. Putting this in perspective, historically - it's been about 3.2 percent per year since the end of World War II," Greiner told a group of business executives hosted by UMB and honorees primarily of the ColoradoBiz Top Company awards program.
For the economy to be healthy enough to create jobs - and real momentum - that number needs to hit 3 to 3.5 percent, said Greiner, adding his predicted range was 1 to 1.8 percent.
On the bright side, Greiner believes we've reached the final stage of a three-stage process in this economic episode.
"The first stage of the process of trying to figure out what to do with any kind of economic structural problem is shock. The markets go through a shock phase, and we went through that in the United States in '08 and the first part of '09 when our equity markets went down by almost 55 percent in value. Liquidity froze up, and the U.S. banking system almost stopped."
The second phase, which Greiner says Europe is tackling now, is finger-pointing. Who's to blame? In the United States, we've already wrestled with this issue and have come to grapple with solutions, such as how to address debt, he said.
"We've come to a conclusion that we need to de-leverage. I think the consumer side of the economy and the business side of the economy is going down that path pretty aggressively," Greiner said. "The government side of the economy has not yet bought into this concept. I think people understand now that that needs to happen. And how it is going to happen, either from raising taxes or lowering spending or some combination thereof, this is the great debate we're having right now in our society."
And that debate is the end result of many years of living on borrowed time - the debt culture that arose in the mid-'80s and hit its zenith when consumers used up their home equity lines of credit for household expenses.
"People were basically moving an asset from the balance sheet to their income statement and consuming that income. And that was going on worldwide in many parts of the world," Greiner said.
Meanwhile, the developing world - India, China and Brazil - began grabbing greater market share of the world economy while we were spending money we did not have, believing home prices would rise indefinitely.
"The developed world - which represents roughly 65 percent to 75 percent of all worldwide economic power - over the last 20 years has been transferring economic power from themselves, as far as losing market share, to the developing world," Greiner said.
He expects U.S. financial markets to improve once it becomes clear how the government is going to handle its deficit - the deficit itself doesn't necessary have to go away.
"Once people understand how it's going to be dealt with and people buy into the concept, that's probably going to mark the start of the major bull market in worldwide equities, at least here in the U.S. and maybe in the developing world, too," Greiner said.
Again, don't place your bets any time soon. We're still talking years, not months.
"We think people are going to talk about this issue pretty hard in the presidential election. There's going to be a lot of debate. There's going to be a lot of rancor. And there's going to be a lot of back and forth on this issue," Greiner said. "At the end of the day, when this issue is settled, that is going to be the start of the new push on the upside and stability within the economic system. Until we get there, we're looking at a very, very volatile environment, not only in the financial markets but also in the economy."
And that uncertainty may cause businesses and consumers to do what they've been doing for the past few years - not much.
"We think people will be talking for the next year, year and a half, asking ‘are we in recession?' If we are or aren't, there's going to be that overhang," he said. "Just because there's that overhang, there are going to be people not necessarily willing to transact. There are going to be people who basically freeze up, consumers and businesses alike. Because the slowness begets slowness."
GOT JOBS BUT NOT THE RIGHT WORKERS
As per tradition, business executives gathered for the roundtable had the chance to share their concerns after Greiner finished his talk. This year, the conversation was dominated by work force issues - that companies that had jobs often can't find workers with the needed skills to fill them.
The roundtable was prefaced by a comment from Greiner that he said had stunned other groups: that not a single net job has been created in the private sector in the United States in 10 years. Greiner paused and then repeated that statement. "I found that amazing. It's absolutely stunning," he said.
"GDP has grown to $5 trillion. Basically we created a China in the United States in the last 10 years," he said. "Our economy has grown the same size as the current Chinese economy. This shows the leverage that is inherent in our economy."
Much of the growth has come from productivity gains, and in its wake, we have unemployed workers who can't be matched for the jobs now available. Welders, for example, are in short supply. "We laid off a lot of people who know how to swing a hammer. And we don't need those people anymore, at least right now," Greiner said.
Trevor Deirdorff, whose Colorado Springs company, Amnet, provides IT and computer support services, said he has a difficult time finding well-rounded technical workers.
"I have my teenage daughters proofreading the work of my adult engineers. They are very technically skilled, but they can't write," said Deirdorff, who added that he also needs those workers to have the kind of business savvy it takes to understand how to best help customers.
Lisa Buckley, president of American Automation Building Solutions in Centennial, advised Deirdorff to check out what classes might be available from his local Small Business Development Center, which she praised as a valuable resource. Her company also has been able to receive grant-funded worker training through the Colorado Association for Manufacturing and Technology.
"We have to make our voices known that we need training for our employees in writing skills, in communication skills, in resolving conflict, whatever that may be, because the funding is there," Buckley said. "And collectively as small businesses, we're not making our voices known."
Traci Kellner of IQ Navigator, a company that helps clients like Apple, the Gap and Disney manage the flow of their contingent labor forces, said her company has difficulty dealing with younger workers, the "millennials," who sometimes have a different work ethic than previous generations of workers.
"The whole talent management piece becomes much more complicated because you are dealing with cultural, generational issues," said Kellner, senior vice president for human resources. "When you look at efficiency and productivity or innovation and engaging employees and maximizing your revenue and limiting your churn of employees, you have to create an environment and a system where people are able to achieve and outperform ... expectations."
At least IQ Navigator can find workers - Xanterra Parks & Resorts often has to recruit internationally to fill the jobs it has at the national parks where it operates lodges, restaurants and other concessions. Despite providing housing and a long-term commitment of year-over-year employment if they stay for the summer, Xanterra has difficulty finding workers here, said Lonnie Clark, corporate controller.
"There are jobs we outsource to internationals because U.S. kids don't want them," she said. "We look all over the population of kids for the right age group."