Indiana 100 and Fifth Third Bank and Largest & Fastest and Shiel Sexton and Economy and PNC Financial

Economy might worsen before it improves much

June 16, 2012

When, oh when, will financing flow again and goose the economy?

That’s becoming an old question for people like John Andrews, who was charged with marketing Shiel Sexton Co. Inc. as the Indianapolis commercial contractor navigated the recession.

When the recession began in December 2007, Shiel turned to publicly funded projects, including expanding the Indiana Convention Center.

Now federal funding is slowing and the private sector is spending more—but not a lot more. So Shiel is building laboratories for Dow AgroSciences and hoping to snag more private projects.

“We’ve had to double down on the things we’re good at,” Andrews said.

If it seems like the economy should be better by now, under normal circumstances it would. After all, the recession ended three years ago this month.

But the Great Recession wasn’t caused by a widespread pullback in spending. Rather, it was caused by excessive debt, primarily a housing bubble that popped, and debt recoveries historically require more time.

Still, the news is mostly good if one takes the long view, economists say.

Corporations led the way in putting their houses in order by closing locations, laying off workers or both. Their return to financial health is so far along that a third of the Standard & Poor’s 500 companies—their bank accounts brimming with cash—increased dividends in the first quarter this year, noted John Augustine, Fifth Third Bank’s chief market strategist.

Consumers haven’t advanced as quickly in righting balance sheets, but they’re making progress.

By one measure, consumers are less leveraged than at any time since 1984, PNC Bank economist Gus Faucher pointed out: Financial obligations including mortgage payments, homeowners insurance, property taxes and auto loans stand at 15.9 percent of after-tax income.

However, just as consumers wind up their struggle, another chapter in the nation’s ongoing recovery from excessive debt is about to unfold.

While most states have done a good job of balancing their budgets, Augustine said, the federal government is another matter. The United States is approaching a crunch similar to what European countries are grappling with now.

“We have a period where a relatively productive private sector is going to be bumping up against this fairly chaotic government,” Augustine said.

Demographic trends will contribute to a rocky few years for the federal government, he said. Not only are boomers going to become a drain on federal programs, they will do less to stoke the overall economy. Because baby boomers are moving into their retirement years, the generation is winding down spending, which keeps the economy from growing faster.

Meanwhile, Generation Y, a huge generation born roughly between 1984 and 1999, won’t begin consuming in a big way until about 2017.

publicrevenue.jpgGrowth, which slowed with the recession and a pullback in boomer spending, won’t resume significantly until Gen Y starts spending heavily roughly a decade after the recession began.

In the short term, the outlook for the overall economy isn’t so bright, some Indiana executives say.

OneAmerica Financial Partners Inc. is selling lots of permanent life insurance policies and other investments that offer both slow growth and relative safety—investments favored when times are rocky.

Sales of new investments shot up 22 percent through April this year compared with the same stretch in 2011, said Executive Vice President Scott Davison.

The European fiscal crisis will suppress growth for at least a year, and another recession is possible, Davison said, all of which benefits OneAmerica: “People will be looking for safety for the foreseeable future.”

Atlas Van Lines, whose business ebbs and flows as workers move to take new jobs, saw activity increase last year following a flat 2009 and 2010.

The company is in the process of doubling the number of Evansville-based personnel that drive and load its trucks, said Vice President of Corporate Marketing Ryan McConnell. It hopes to have 200 by the time the moving season peaks in mid-summer.

Because business has improved, corporations are moving more scientists, lawyers and other professionals, and the military has shifted people around as bases close and Middle Eastern deployments wind down.•

ADVERTISEMENT

Recent Articles by Norm Heikens

Comments powered by Disqus