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San Diego
Thursday, May 30, 2024
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Economic Measurements Paint Gloomy Picture of Recovery

As gauges go, a few recent ones on the economy aren’t too uplifting.

A local index that measures six different components fell by 1 percent in August, while another based on answers provided by top executives fell by about 10 points in the third quarter.

Of the two, the Index of Leading Economic Indicators prepared by the University of San Diego’s Burnham-Moores Center for Real Estate may be telling since it’s using actual data. The Vistage CEO Confidence Index is another signpost for the economy, but one based on executives’ answers to questions.

Presentations on the two measures were made at the South County Economic Development Council’s annual summit held Sept. 30 at the San Diego Convention Center.

Alan Gin, the economics professor who compiles the USD index, said the fact that the measure has dropped two out of the last three months is worrisome, although insufficient to make him change his mind about the long-term slow recovery for the local economy.

“In 2012, I expect positive but modest job growth,” he said, forecasting between 15,000 to 20,000 new jobs next year. Through August, the region gained a net of 13,400 nonfarm jobs, or 1.1 percent above the total number in August 2010, according to the most recent state report.

Double Dip Recession Unlikely

Gin stated the chances of the national economy falling into a double dip recession or one where the gross domestic product falls rather than grows is less than 50 percent. Christopher Thornberg of Beacon Economics in a local presentation last month said the chance was practically zero.

While three of the six components of the index declined by more than 1 percent, and stock prices fell by more than 3 percent, the numbers were likely influenced by a spate of bad news in August, including Congress’ delayed raising the nation’s debt ceiling, and Standard & Poor’s downgrade of the nation’s credit rating.

Those combined with already dismal job news likely caused local consumer confidence to fall by 2.85 percent.

As for the local unemployment figure, Gin noted that it’s been above 10 percent for most of this year, and should start falling as the year progresses to the high 9 percent range by year-end, and the low 9 percent range next year.

Rafael Pastor, chief executive of Vistage International Inc., a group that helps CEOs perform better, said the index his organization puts together can also be regarded as an indicator since history has shown that after the index rises or falls, the national GDP number moves in the same direction.

The 83.5 index in the third quarter is the lowest it’s been in the past two years, and down from the second quarter when it was at 92.9.

Mixed Survey Responses

For the most part, the 1,710 executives responding to the survey aren’t optimistic about the future.

Only 20 percent think the economy will improve over the next 12 months, 55 percent believe it will stay about the same, and 20 percent think it will get worse.

However, the survey also showed the executives’ companies will likely do better. Sixty-two percent said their business revenue will increase, while 30 percent said the revenue will be about the same, and only 8 percent expected revenue to fall.

In terms of profits, 47 percent of respondents said they expected an increase next year, while 38 percent said profits will be about the same as this year. Only 15 percent think these will decline.

One of the more revealing questions asked was to list what they consider to be the most significant business issue they face.

The largest response, 40 percent, was “economic uncertainty” followed by two issues each of which garnered 13 percent for “staffing issues” and “financial issues.”

Pastor said the lack of confidence among many executives was evident this year.

“When uncertainty sets in, then caution also sets in and when caution sets in, then they are much more reluctant to invest in their businesses by hiring new people simply because they don’t know what the lay of the land is going to be,” he said.

While this uncertainty is resulting in many businesses standing still, a rising number of small and medium-sized businesses are looking at this time as an opportunity, and are expanding into new international markets.

More than 25 percent are now doing business outside this country, Pastor said, citing the recent survey.

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