Joel Naroff, of Margate and Holland, Pa., is president of Naroff Economic Advisors and this year’s most accurate U.S. forecaster, as determined by the National Association for Business Economics.
His clients include the Susquehanna and Metro banks, grocery giant Ahold USA, Cumberland Advisors, eMoney Advisors and Prudential Fox & Roach. Naroff discusses the economic recovery, government interventions, lasting effects of the downturn, and the future of the regional economy.
Q: Is the popular perception of the economy accurate? Should we be worried more or less about the strength of the recovery?
A: For about a year and a half I’ve been asking people if they think the recession is over, and if I get 5 percent of the group saying yes, that’s a lot.
Yet the recession ended in June 2009. That perception is being driven by job numbers.
We seemed to be coming out of it in the first part of the year. There were several months where we had job growth in the 200,000 range. That was signaling that the economy was on the verge of changing gears.
Unfortunately, before the job growth could get strong enough and be self-sustaining, we had $4 a gallon gasoline. And that really cut the legs out of what was always going to be a tenuous recovery.
You could never get a really strong recovery with housing not going to rebound the way it did in the past. Housing used to lead the recovery, but we built almost twice as many homes as we needed in the last decade, so housing’s going to be weak.
But if you look at the details of the economy, the manufacturing sector is really good, the service sector has been expanding, exports are really doing very well. The details are better than the headline popular number, which is jobs, and I think that’s why people are depressed, and with very good reason.
If you can’t find a job or are worried about losing your job, that’s job insecurity, and that’s what a lot of people have right now.
Q: What are the strengths and weaknesses of the Jersey Shore’s economy?
A: Clearly the attractive forces in terms of the shore communities and the summertime are not going to go away and are only going to grow. But I think the key factor over the next 10 to 20 years is the slow but steady retirement, or whatever they call it, of the baby boomers.
Baby boomers are not retiring all at once, but that process has begun and over the next 10 to 20 years it will ramp up. Baby boomers are looking for different things than their parents’ generation looked for. They’re looking for what I call high-density amenity locations. Places where they can get to and do lots of different things easily.
That changes where they’re going to locate. Center cities become not really great places. Areas around colleges become really nice places. The shore becomes a wonderful area. If you think of Atlantic City in terms of all the cultural amenities that is has to offer — the music, the shows — it’s a really desirable place not just for the summertime, but for the baby boomers it becomes a desirable place to retire to.
I think we’re beginning to see that. A lot of the rentals over time will be replaced by retired baby boomers living there full time. That will change the face of shore communities because the services that go along with more and more full-time and reasonably well-off residents will have to be developed.
Atlantic City is obviously the linchpin, but Atlantic City is also the risk in that, for the longest period, it had relatively little competition. Now that’s not the case. There are casinos everywhere, and Atlantic City needs to define itself in a different way.
Outside of Atlantic City, clearly what’s happening in the airport and (William J. Hughes) Tech Center area is potentially a huge plus over the next 10 to 20 years because that’s so much of where the world economy is going.
Q: Will the region’s housing market benefit going forward from its substantial second-home and retirement-home segments?
A: If my thinking about the Jersey Shore being a retirement community and not just a tourism attraction is correct, that’s very good for the stability and growth of the housing market.
That demand will continue and grow to a major force as more baby boomers retire. To the extent it requires a more diverse and stable base to support the residents, that’s going to bring more workers, more incomes, and more demand for housing throughout the area, including offshore.
Again this is going to take a long time, 10 to 20 years, but it does have a really good implication for housing market outlook.
Q: What is the potential for Atlantic City to set itself apart from the convenience gambling competitors around it?
A: Atlantic City faces a major challenge right now to identify itself in a different manner.
It can’t be the same Atlantic City that it was 20 or 30 years ago, and it isn’t. It has been trying to wean itself off of the day-trip model and become more of a destination. That’s critical.
The challenge is figuring out precisely what that image is. It’s got to be something else that really sets it apart.
It’s got a large enough mass now, with the Revel hotel coming in, that even if it loses some of its casinos, it’s a different place than anything that exists on the East Coast. It has to make that clear and sell that. I’m not a marketing expert, but I think there’s an understanding that it’s a tourism place, it’s got the summers, but getting people down here in the fall and spring is really important as well.
Q: Is there anything that government can do to reduce unemployment and strengthen the weak recovery?
A: With this really, really disappointing recovery, I think everybody’s turned toward the magic bullet. Can’t the government do something? We’ve spent all this money, bailed out the banks, had stimulus plan after stimulus plan. Why isn’t the recovery stronger?
With fiscal policy being restrictive and state and local governments cutting back on their budgets and their work forces, and with housing and finance not adding in the way they used to, it’s very difficult to get things going.
That said, could the government be doing more? Well, the problem with fiscal policy is that it takes a long time. Even the so-called shovel-ready projects we started are still being worked on. We have construction just beginning or not yet finished and it’s nearly three years ago we started that.
The government can’t simply say, gee, we’ll cut taxes. Businesses have $2 trillion in cash on hand. That’s not what’s stopping them from hiring more people and investing more. It’s uncertainty about the economy.
Q: Are there things government shouldn’t do during this period of prolonged economic weakness?
A: There’s a lot of debate about that. You don’t want the government to put up hurdles to business. At the same time we’re in a special situation.
We had been letting the financial sector handle things on their own, and while there were plenty of regulations to deal with the excesses that occurred, the regulators didn’t enforce those regulations nearly to the extremes that they might have to prevent things from happening.
I’m not saying the regulators were at fault, but now the question we’re having is what’s the right amount of regulation and what’s too much or too little regulation. We’ve gone through a period of too little regulation and we may be going through a period of too much regulation, but we know there are costs involved with that. We need to make sure there’s not too much regulation.
We need to make sure there’s confidence coming out of Washington, coming out of the statehouses across the country, coming out of local governments, that people are dealing with the issues rather than fighting.
In a period where psychology matters, the chaos that’s going on in Washington is not particularly helpful.
So what government can’t do is send the wrong messages and create major hurdles that will prevent households and businesses from doing the things they need to do.
Q: What is the soonest and the latest the economy might return to what we’d consider normal?
A: This is one of those questions that if I knew the answer I’d write it down. I’d like to say it’s probably going to be at 2:30 in the afternoon of March 14, 2012. The reality is that we really haven’t had to go through a recovery where we were dealing with two of the most critical components of the economy, housing and finance, that were so badly damaged that it was taking a long time for them to recover and get things going.
These are conditions we really hadn’t seen in previous recoveries in the post-World War II era, really in the last 60 to 70 years. That makes it a very odd situation.
The economy is going through what I call a slow but steady grinding recovery. It’s going to take a while. By the time we get to next spring or summer, we will clearly see that things are back. Are they going to be normal? Maybe not fully normal but getting there. If you think back to last spring, when job growth was coming around, we hadn’t flipped a switch, we hadn’t shifted gears, we were getting to that point such that, if gasoline prices hadn’t shut the recovery down, by now we’d be in pretty good shape.
We’ve essentially pushed that recovery back a year, so by the spring we’ll probably be in the process of shifting gears and by summer we’ll see things getting appreciably better.
Q: Will the severe downturn have lasting effects and, if so, what might the new normal look like?
A: Whether it has as deep an impact as the Depression did on that generation that lived through that, which became extraordinarily cautious for a long time, is unclear.
But the longer this goes with this kind of slow growth, this kind of uncertainty, with this kind of job insecurity, the more that perceptions and attitudes are going to change.
It’s going to be a long time before we have another go-go housing market. People are going to look at jobs in different ways. Job security had been defined by a lot of people as simply the ability to get another job. If I don’t like this one, I’ll just go find another one. Well, they’re going to be looking at trying to keep their jobs.
In addition, a lot of people are being scarred by changes in income and spending, and so their spending habits are going to change. Shop ’til you drop will return, but it’s going to take a long time. Maybe it will be shop ’til you’re tired.
Then there’s the idea of what’s a normal economic expansion. We think of the last 20 years as having really strong growth, but what drove the ’90s? It was a tech bubble. That created a huge amount of wealth and that wealth drove strong growth.
Similarly, what happened in the last decade? A lot of people saw their housing prices go up, they spent as if their $250,000 home was really worth $2.5 million, and that extra wealth on paper drove the strong growth.
Unless we have another bubble that creates huge wealth, we’re not going to have that strong growth.
So the new normal, which is an old normal, a non-bubble-driven normal, is significantly slower growth than we had in the bubble periods.
Q: How will the jobs of the future be different, and how should workers prepare themselves for them?
A: The job of the future is just a continuation of the changes that we’ve seen the last 20 years. The days of being able to get a basic high school education, go into a factory and make a decent living are pretty much behind us. Factory jobs are much more skilled right now, and you hear stories every day about manufacturers who even in current circumstances are having trouble finding the right people with the right skills.
That’s in part a result of our perception that manufacturing is disappearing so we don’t have to train for it. It’s not necessarily that the education system went wrong, just that we told everybody they should be in software, rather than getting the kinds of technical skills that every firm requires right now.
It shouldn’t be that we have so many manufacturers looking for skilled workers and they aren’t out there at a time when we have unemployment above 9 percent in the state and nation. That’s a lack of understanding where the skills were going and setting up the training to match that.
Q: What are your business clients most concerned about this year?
A: In the beginning of this year, the question I was asked the most was: When are we going to get out of this and how strong will the recovery be?
Then as we moved through the summer and the chaos of Washington with the debt ceiling, budget cuts and the downgrade, the question became: Are we going to go into a double dip?
Businesses are uncertain and they’re not hiring because of that. They want to have some confidence that if they make an investment and hire some people, the economy’s not going to fall apart three months from now. And while no one can give them certainties, my forecast is that’s not likely to happen, at least not unless there’s another shock to the economy.
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