April 17, 2014

Is recession ‘ground zero’ seeing the buds of an ‘economic spring’?

If you ask economist Roger Tutterow where “ground zero” of the global recession was, he says “right here in the Carpet Capital of the World.”

But after years of “pain,” Tutterow says people can be “cautiously optimistic” about a “return to normalcy.”

Tutterow, a professor of economics at Mercer University and a financial consultant to state lawmakers and Fortune 500 companies, spoke during the Manufacturing Trends luncheon at the Dalton Golf and Country Club on Thursday. The event was hosted by the Greater Dalton Chamber of Commerce.

Tutterow said he saw the housing market crisis coming in 2007 despite some skepticism from colleagues.

“I told people new home construction was going to drop 45 percent (in the state),” he said. “A lot of folks thought I was pessimistic. Turns out, I was Mr. Sunshine. We dropped 45 percent, all right. We dropped 80 percent.”

Those struggles are something Dalton knows all too well, Tutterow added.

“I don’t need to tell you what it did to the building supply, floorcovering and carpet industries,” he said. “The good news is we are back, we are growing activity in that area.”

GDP shows signs of ‘gradual’ recovery

Tutterow pointed to a rise in the nation’s gross domestic product (GDP) — the value of goods and services produced in America — as a broad sign of economic recovery. Reports from the Congressional Budget Office (CBO), the International Monetary Fund and other global financial watchdogs show the GDP grew from $13.9 trillion in 2009 to $15.6 trillion in 2013, with roughly 2 percent growth each year.

“The outlook for this year says the growth will be stronger, around 2.5 percent,” Tutterow said, adding that expectations could be off because 1 percent of goods produced last year went into company inventories.

“We still expect 2.5 percent growth this year,” he said, “but more on the backside than the first part of this year, because people will be pulling from inventory, meaning a sluggish start to production.”

GDP doesn’t give the full “story” on what happened locally, Tutterow said, adding that the numbers in manufacturing are also positive.

“There was a surge of manufacturing in 2010, an even larger one in 2011, and then in the second half of 2013 we had an expansion as robust as anything we’d seen in the previous decades,” he said. “Gradually, we see it coming back.”

“Gradually” is the key word, said Tutterow, who cautioned against thinking an economic heyday is right around the corner.

“I’d say — I am very cautiously optimistic that we are gaining momentum in this country,” he said.

‘Head winds’ pushing against recovery?

Brian Anderson, president and CEO of the chamber, said he is still concerned about “head winds” pushing against recovery like the national debt ($17.5 trillion at last count by the CBO on Wednesday), a potential energy crisis from a reliance on dwindling fossil fuels, and shortfalls in education.

Anderson said manufacturing has become a tech-heavy industry, and high school graduates — who have historically filled manufacturing roles — aren’t always qualified for those jobs nowadays.

“There’s certainly enough awareness that we can work on it,” he said. “I think an economic spring will remain a slow, gradual trend. We’re not going to get that immediate (jump) that happens after other downturns. I think it’s about keeping sustainable positive growth and not having another dip.”

Tutterow agrees.

“To have sustained economic expansion, we need not just a recovery in housing, not just a recovery in business investment spending, but also we have to see domestic consumption come back,” he said. “In a typical post-WWII (World War II) recession, retail sales never go negative.”

They did from 2008 to early 2013, according to several federal and watchdog reports. That’s something “without precedent,” Tutterow said.

“In a typical recession, you might sell 2 percent less stuff at the store — the volume drops — but if your price goes up by 3 percent, net-to-net, your revenue actually goes up,” he said. “In the recession of 2008 and 2009? It went negative. The good thing is that ... retailers are now getting back to breaking even.”

‘Reshoring’ could mean more manufacturing jobs

Anderson and Tutterow said a phenomenon called “reshoring” — a push to keep industry in America as opposed to outsourcing to other countries — is also going to help build manufacturing in the area.

“The rest of the world — as far as some developing countries go — have gotten their standard of living up to a point that it’s as easy to build industry here as it used to be to build it offshore (where labor was often cheaper),” Anderson said. “All that plays into a stronger American manufacturing economy and a stronger global economy.”

Tutterow also agreed with that.

“It (reshoring) is about the cost of energy and the cost of labor, and those two factors are more favorable today (in America) than they have been over the past two decades, when we saw the draining of manufacturing out of our country,” he said.

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