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Politics will slow 2013 economic growth
PHOTO: Wells Fargo regional economist Michael A. Brown
The new normal for America is 2.5 percent annual economic growth, down from the past standard of 3 percent to 3.5 percent, a Wells Fargo Economist said Friday in Duluth.
And given this quarter’s political uncertainty in Washington – with the national debt approaching its allowable limit – growth during early 2013 will be even lower, regional economist Michael A. Brown said at the annual Wells Fargo Economic Realities Luncheon.
“From the business decision-makers’ standpoint, it’s disappointing,” he said. Despite growth on the national level in home sales and personal income, uncertain tax policy is stifling further progress.
Confidence among business owners began to wane during the last quarter, Brown said, while politicians argued about the fiscal cliff. A Wells Fargo/Gallup survey found the majority of small business owners now are less optimistic about the economy than last year.
“We’ve seen businesses become a lot more cautious the last few months. That’s going to be with us in the first half of the year,” he said. “One of the major factors holding back growth is the ongoing political wrangling in Washington over the debt ceiling and the debates about both taxes and spending. The administration has signaled it plans to put tax increases on the table – possibly corporate tax reform as well as higher individual income taxes. I don’t think we’ve seen the end of uncertainty.”
The national debt problem will require Congress to make tough decisions, Brown said.
“We have over-promised, and now we’ll have to under-deliver” entitlement programs, he told the packed gathering, co-sponsored by the Duluth Area Chamber of Commerce. “We have to reform those programs in order to make them sustainable, because right now, they’ll be bankrupt in 2025.”
An even more difficult challenge is reducing the nation’s high jobless rate, Brown said. While some workers still are affected by layoffs, the bigger problem is the lack of people who are qualified to fill highly technical existing positions.
“There’s a literal disconnect between the skills in the U.S. labor force and the skills in demand by companies today. People having only a high school diploma have an employment rate of about 12 percent. For those having a college degree, the rate is about 4 percent,” he said.
That’s a problem that can’t be fixed by adjusting federal monetary policy, Brown stressed.
“This is a public policy issue at the state and local level” that needs to be addressed by leaders in the higher educational system, he said.
Minnesota this year will experience about 0.5 percent economic growth, he predicted. The economy picked up during 2012 but then slacked off as the fiscal cliff talks unfolded. Still, 2012 job growth was good, particularly in the professional and technical services sectors. Home prices appreciated and more permits were issued to build multi-family homes.
Duluth has experienced some growth in local government, healthcare services and education, according to the regional economist. Local unemployment, while not as low as Minnesota’s, is lower than in much of the country. Housing starts, however, are slow, and there’s an excess supply of existing homes on the market.
“I think the prospects are quite good for the state and local economy as long as we get past a lot of the uncertainty of the regulatory environment in Washington right now,” he said.
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