Small Business Certainty is Key to Economic Recovery

I recently attended a real estate symposium with Dr. Mark Dotzour, the Chief Economist and Director of Research at Texas A & M College. Here are some of the basic points he discussed regarding the economy and commercial real estate:

The Good News

Corporate profits are up

Personal expenditures are up

Household debt is declining

General retail same store sales are up

A higher percentage of corporations plan to hire

Manufacturing new orders are up

Gross private domestic investment is up

Problem:

1) Small businesses are reluctant to hire due to uncertainty

2) Bank crisis has not been solved

3) We are in the biggest credit contraction since the depression

4) There is a lot of pent up demand from businesses and consumers that have postponed decisions and are sitting on cash.

History Lesson

“Hoover’s Maneuver”

Herbert Hoover raised taxes and tightened credit. It didn’t work well in the 30’s and if won’t work well now.

“Japanese Experience”

In 1989 the Japanese stock market and real estate bubble burst. They failed to recognize zombie loans. Twenty-One years later the Japanese stock market is 75% below peak and land values are 66% below peak.

Bad Case Scenario:

1) Congress demonizes business

2) Uncertainty of government regulation is killer to business activity

3) More government stimulus spending

4) Higher income taxes that reduces consumption and investment

5) Failure to resolve banking system causes the commercial real estate market to stay frozen

Solution:

1) The public sector needs to right size their budgets—public employees are part of the solution for cost cutting measures

2) Small businesses and investors need to get the “go signal” from Congress to grow jobs

3) The banking industry has to recognize the bad loans on their books

4) Diminish uncertainty

5) More investment in stocks

If banks won’t lend, the government will lend indirectly. Deflation is the serious concern. The amount of stimulus needed to get the economy out of depression is massive. Movements towards austerity led almost immediately back into recession.

We are all awaiting the results from the election November 2nd. Your vote matters so be sure to take the time to either absentee vote at your city hall or make it to the polls Tuesday 7:00 am – 8:00 pm.

Roz Peterson rozp@cerron.com 952-469-9444

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