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Strategist: Economy expected to 'muddle' through 2013

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The U.S. economy is expected to grow next year at a less-than-ideal rate, but that’s not necessarily a bad thing.

That was the message delivered Friday morning by John Augustine, chief investment strategist at Cincinnati-based Fifth Third Bank, who spoke at IBJ’s annual Economic Forecast. (For a recap and discussion of how the winner of the presidential election could affect the economy, see video below.)



Entering 2012, Augustine said the growth of the U.S. economy hinged on the number three: Gasoline prices needed to stay within the $3-per-gallon level, the inflation rate needed to be at or below 3 percent (it was 1.7 percent through August), and gross domestic product needed to grow 3 percent.

GDP growth, at just 1.25 percent, continues to be among the biggest drags on the economy.

So Augustine is scaling back his expectations for next year—to just 2 percent GDP growth—as the economy continues to “muddle,” he said. But that’s OK as long as growth remains above the inflation rate, he said.

“This year, despite the recession in Europe, we’re moving forward, just not as much as we would want,” Augustine said, citing improved housing and unemployment numbers. “However, we’ve still got three months to go, and we do see storm clouds on the horizon.”

High unemployment remains a concern, along with federal spending rates and volatility in the commodity markets, particularly concerning high gasoline prices.

If the U.S. economy relapses into recession, much of the blame will fall on the federal government, Augustine said, for spending much more than it takes in. That’s what parts of Europe are experiencing now.

“We’re literally paralyzed by this,” he said. “The bigger the government spending, the less the economy grows. That’s just the way it is.”

On a brighter note, the stock market is performing relatively well, with the S&P 500 near its all-time high, and corporate earnings and dividend yields are strong, he said. The challenge is getting companies to invest that cash in expansions and new hires to help bring the unemployment rate down.

With the presidential election looming in November, those are keys to a successful administration, Augustine said.

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  1. I took Bruce's comments to highlight a glaring issue when it comes to a state's image, and therefore its overall branding. An example is Michigan vs. Indiana. Michigan has done an excellent job of following through on its branding strategy around "Pure Michigan", even down to the detail of the rest stops. Since a state's branding is often targeted to visitors, it makes sense that rest stops, being that point of first impression, should be significant. It is clear that Indiana doesn't care as much about the impression it gives visitors even though our branding as the Crossroads of America does place importance on travel. Bruce's point is quite logical and accurate.

  2. I appreciated the article. I guess I have become so accustomed to making my "pit stops" at places where I can ALSO get gasoline and something hot to eat, that I hardly even notice public rest stops anymore. That said, I do concur with the rationale that our rest stops (if we are to have them at all) can and should be both fiscally-responsible AND designed to make a positive impression about our state.

  3. I don't know about the rest of you but I only stop at these places for one reason, and it's not to picnic. I move trucks for dealers and have been to rest areas in most all 48 lower states. Some of ours need upgrading no doubt. Many states rest areas are much worse than ours. In the rest area on I-70 just past Richmond truckers have to hike about a quarter of a mile. When I stop I;m generally in a bit of a hurry. Convenience,not beauty, is a primary concern.

  4. Community Hospital is the only system to not have layoffs? That is not true. Because I was one of the people who was laid off from East. And all of the LPN's have been laid off. Just because their layoffs were not announced or done all together does not mean people did not lose their jobs. They cherry-picked people from departments one by one. But you add them all up and it's several hundred. And East has had a dramatic drop I in patient beds from 800 to around 125. I know because I worked there for 30 years.

  5. I have obtained my 6 gallon badge for my donation of A Positive blood. I'm sorry to hear that my donation was nothing but a profit center for the Indiana Blood Center.

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