A Federal Reserve Bank economist at a Springfield economic outlook conference last week projected the U.S. would continue to recover slowly through 2012 before improving slightly in 2013.
About 130 people attended the Missouri Council on Economic Education’s July 9 luncheon at University Plaza Hotel and Convention Center that featured Craig Hakkio, senior vice president and special adviser on economic policy for the Federal Reserve Bank of Kansas City.
Hakkio said high household and private-sector debt and low job growth are key factors suggesting a continuing sluggish recovery from the economic downturn of 2008 and 2009. Hakkio was brought in by the nonprofit MCEE, which has a mission to increase financial literacy in Missouri schools.
For 60 years, MCEE has provided youth education programs, teacher workshops, economic analysis and community forums to assist 5 million students and 50,000 teachers, President and CEO Mike English said.
Economic forecast During the event, held for the second year in a row in Springfield, Hakkio forecasted sluggish U.S. gross domestic product growth of 2 percent this year, and slightly more than 2.5 percent in 2013. He said U.S. unemployment should remain at 7 percent or above through 2014.
In June, nonfarm jobs in the U.S. grew by 80,000, which was not enough to bring unemployment down from its current level at 8.2 percent. Hakkio said more than 150,000 jobs need to be generated each month to reduce the unemployment rate.
While the economy has grown every quarter for the last three years, Hakkio said the country has been in “a soft patch” during the last five quarters as people pay down debt and recover from the housing bust.
According to the Bureau of Economic Analysis, the GDP increased by 1.9 percent in the first quarter of 2012, compared to 3.9 percent GDP growth in first-quarter 2010. In recent years, Hakkio said household debt has been nearly equal to the GDP – above 90 percent of the GDP between 2005 and 2010 – due in large part to a low prime interest rate, which as of July 10 was 3.25 percent, according to FedPrimeRate.com. Prior to 1980, household debt was less than half of the GDP.
“Reducing debt, or deleveraging, takes a long time and entails very slow economic growth,” Hakkio said, adding that low interest rates in the run up to the recession were the driving force behind higher loan levels. “What’s the best way to reduce your debt? You’ve got to save more and spend less. When you spend less, economic growth is going to be weaker.”
One positive sign: Corporate profits have been at historic highs, around 13 percent of the GDP this year, which means many companies may be ready for capital investments. Between 1970 and 2000, corporate profits ranged between 7 percent and 11 percent of the GDP.
“If we can see a resolution of uncertainty, firms may be prepared to invest more rapidly,” Hakkio said.
He said countries that focus on education – such as Singapore, which ranks as the top country in the world for ease of doing business and educational spending – have an advantage in an increasingly global marketplace.
Springfield Public Schools Superintendent Norm Ridder, who attended the luncheon, said investing in education is crucial if the U.S. wants a seat at the global economic leadership table.
“In countries like Singapore, Hong Kong and Finland, many teachers are paid more than doctors and lawyers,” Ridder said, noting pay levels help those countries attract top minds into the teaching profession.
Ken Homan, senior vice president and senior portfolio manager at Central Trust & Investment Co., said he was aware of much of the data presented at the conference, but he was glad to hear some optimism about emerging world markets, such as China. Hakkio said reports of growth slowing in China may be exaggerated, and he predicted 8 percent to 10 percent annual GDP increases in the near future.
Homan said with seemingly little political appetite for belt-tightening in Washington, D.C., U.S. industry will likely have to find customers abroad to get past this economic slump.
“For us, we’ve got to grow our way out,” Homan said. “My only hope is that we can take advantage of a dynamic and growing world economy.”
Arming the kids To help develop tomorrow’s business leaders, Cindy Shannon, an advanced marketing instructor at Parkview High School, said her class has worked with MCEE.
Having heard of its Missouri Entrepreneurship Challenge for high school students, she arranged last school year for two class teams to apply for the contest.
Students wrote their own business plans for fictional companies they created, and Shannon brought in Kim Nash, a Great Southern Bank assistant regional manager, and Marlin Network account executive Chelsea Begley, a former student, to review the plans and offer suggestions. The high schoolers wanted to qualify for the state competition, which meant they had to get serious about their plans.
“The banker just shredded the microfinance business. She was like, ‘That’s not going to work,’ because the kids wanted to charge an exorbitant amount of interest,” Shannon said of the business that would provide capital to cash-strapped entrepreneurs.
The students revamped their plans, and were asked to attend the state contest. At the event, Shannon was able to attend a workshop on entrepreneurship for teachers presented by the Kansas City-based Kauffman Foundation.
“It was really great. (The foundation provided) a bunch of videos I could access in my classroom to teach entrepreneurship and foster that entrepreneurial spirit among students,” Shannon said.
At the state competition in November at Missouri Western State University, the students were judged on their plans for a newly created venture by a panel of St. Joseph-area business leaders. Both teams placed in the Top 10 in the state.
The whole experience, Shannon said, did a good job of recreating what real entrepreneurs go through. “Any time I can give them real-world experience, that’s what I try to do,” Shannon said.
“It’s vital to the economy for kids to be doing things like this. It lets them know that they have a role in the economy.”
This installment of Springfield Business Journal’s Architects & Engineers Project Report showcases 26 endeavors by area design and engineering professionals.
