Halfway through 2013, the economy has exceeded expectations and performed better than anticipated, economists said.
“In a lot of ways we kind of did write off the first half of the year,” said Mekael Teshome, economist for The PNC Financial Services Group Inc. But “it turns out the economy has been more resilient than anticipated. It’s not that things weren’t slow the first half of the year, but consumers, for example, held up much better.”
Before 2013 started, experts had all but written off the first half of this year for economic growth.
Forecasts for job growth and economic output were dimmed by the prospects of automatic federal government budget cuts known as sequestration and the so-called “fiscal cliff.” The cliff was the roughly $600 billion of tax increases and budget cuts set to take effect at the end of 2012, early 2013.
These major headwinds slowing down the economy are reflective of the stop-and-go recovery struggling to run on all gears since 2009.
Mirroring these expectations, for example, John Marrocco, head of business banking for Fifth Third Bank in this region, told this newspaper in February he foresaw a possible slowdown in overall growth the first part of 2013. If the economy continued to improve, the second half of 2013 would be better, similar to what happened in 2012, Marrocco said at the time.
More than a third of all Fifth Third’s loans to businesses last year occurred in the fourth quarter 2012, following debates on the U.S. debt ceiling and the presidential election.
Cincinnati-based Fifth Third is Southwest Ohio’s largest bank.
Sequestration overall hasn’t really taken as big a bite out of growth as was feared.
The thought was tax increases would decrease the amount of money in people’s pockets to spend, and make people save more.
“It turns out we did have lower gas prices than we did a year ago,” which helped offset tax increases, Teshome said.
There’s also continued job growth. The national economy has added an average 202,000 jobs a month for the past six months, up from 180,000 in the previous six, based on the most recent U.S. jobs report released July 5.
“People with existing jobs aren’t getting big raises, but the more people with jobs means more people can spend,” he said.
However, the bad news is things won’t feel much different going forward than they do now for consumers.
“For the average person, it will feel about the same; just steady improvement in the labor market,” Teshome added.
Key factors driving economic growth are the rebounding housing market, the trend of “reshoring” manufacturing jobs back to American soil, a booming U.S. energy sector and a brighter global economic picture, says Jeff Korzenik, chief investment strategist for Fifth Third.
In the Dayton market, the number of homes sold through May 2013 is up 14 percent from the same time period of 2012 and up 26 percent from 2011. From January to May, 4,969 homes were sold in the Dayton area of Greene, Montgomery and Preble counties, and northern parts of Warren County. For the same time period of 2012, 4,347 homes were sold; and 3,929 in 2011, according to Dayton Area Board of Realtors.
The average home sale price across the Dayton area through May is $120,160, compared to $116,857 in 2012 and $107,771 in 2011, according to the Dayton realtors group. Prices still sit 20 percent below the peak level in June 2006 of $150,752.
“The gains in housing continue, and it’s a virtuous cycle,” Korzenik, the Fifth Third investment expert, said.
“More people are finding jobs as we have payroll gains. That means … continued low mortgage rates on housing affordability is very high. We’re seeing people purchase homes. We’re seeing that improve the price of homes,” he said. “That makes lenders more willing to lend to buyers and we’re getting a lot of positive feedback in the housing market, so that will continue.”
The lagging statistic in the economy’s big picture is job growth.
Revised numbers show employment levels from December 2011 to December 2012 in the Dayton metropolitan actually dropped.
The number of Dayton metro people employed in Greene, Miami, Montgomery and Preble counties as of the end of 2011 was 377,100. As of the end of 2012, metro employment was 376,800, down 300 jobs from the year before. Pre-crisis, 406,900 Dayton metro people were employed in December 2006, according to figures from Ohio Department of Job and Family Services.
“I think one of the big differences with past cycles is how many long-term unemployed we have. The average duration of unemployment in the U.S. is still around 36 weeks, which is extraordinarily high. So when people lost their job, it’s very hard for them to get back in the workforce,” Korzenik said.
In past recessions since World War II, the average length of unemployment was 15 to 20 weeks, he said.
“The other factor is because we have such still high levels of unemployment, we are far from that magic number of 6 percent unemployment. And 6 percent unemployment historically is very important because when you get unemployment below 6 percent, you start to get wage growth,” he said.
Going into the second half of 2013, PNC economists expect “persistent moderate growth.”
“We’re looking at a little over 2 percent GDP (Gross Domestic Product) growth for the third and fourth quarters,” Teshome, of PNC, said. “That’s not spectacular and it’s not bad either.”
By comparison, U.S. GDP grew at an annual rate of 1.8 percent in the first quarter 2013, according to the U.S. Bureau of Economic Analysis. Real GDP estimates the value of goods and services produced in the U.S. adjusted for inflation. As of the end of March, the dollar value of goods and services made in the U.S. was $15.98 trillion, according to government estimates.
The U.S. economy grew 2.2 percent in 2012, according to the federal agency’s revised estimates, the same as Ohio’s economy. Ohio’s economic output last year was $435 billion.
U.S. GDP actually recouped its losses from the recession by the end of 2011, according to government figures.
“We’ve climbed out of the hole in terms of production. It’s employment that’s still lagging,” Teshome said.
The Associated Press contributed to this report.