by Kirk Maltais
“It’s been a disappointing economic recovery since the end of the financial crisis in mid-2009” says a report published by Goldman Sachs in October. According to the report, written by Senior US Economist Andrew Tilton, the weak growth in the US gross domestic product (GDP) since the most dire times of the recession is why unemployment is still high, and in turn is why the economic situation for much of the United States has not noticeably improved.
Do we have anything to look forward to in 2012?
The short answer: Maybe. Economists are pointing to an improvement in the latest national unemployment numbers and an increase in consumer spending during this holiday season as evidence of a resurgence. However, many are worried about the fallout from a still-floundering European economy, as well as the effects of our own financial decisions, and fear that America may sink back into recession.
That said, premonitions of assured doom for our financial futures in the next year are premature. In fact, in Richmond, it’s most likely not the case.
For starters, the current unemployment rate in Virginia is at 6.2 percent, the 9th-lowest nationwide. By comparison, Nevada currently suffers the highest rate of unemployment, sitting at a whopping 13 percent. The national average is currently at 8.6 percent.
Most estimates show many facets of Virginia’s economic recovery paralleling nationwide statistics. According to a report from JP Morgan Chase, citing figures from the US Department of Labor, over 3.5 million jobs were added in Virginia in 2011, with 2012 on pace to reach a similar, if not better, number.
“I would characterize us as ‘cautiously optimistic.’” says Greg Wingfield, President of the Greater Richmond Partnership.
According to Wingfield, the economic outlook of our area is improving at a rate faster than other places in the country, and it is because Richmond, along with the rest of Virginia, is a good place to do business.
“It starts at the top, with the state. The corporate income tax has not change since 1972,” says Wingfield.
Because of laws that allow businesses more flexibility, he says, and the fact that Virginia hasn’t raised taxes on businesses to cover their budget shortfalls, companies are willing to move here, which brings jobs. Which explains why Forbes puts Richmond in their top 50 of best places to do business in America.
Kim Scheeler, President of the Richmond Chamber of Commerce, agrees with Forbes.
“We are clearly equipped to continue to attract more businesses to our region,” says Scheeler. We are becoming recognized more frequently for the innovative environment we have in this region. We have a talented and creative workforce that is available in most sectors.”
This is not lost on outside businesses. Just this month, internet giant Amazon.com announced the building of two new “fulfillment centers” in the Greater Richmond area, which invests $135 million into the area and brings us 1,350 new jobs.
“The establishment of these new operations is testament to the positive business climate and success the company has experienced in the Commonwealth,” said Gov. Bob McDonnell in a press release, which called this announcement “the biggest jobs announcement in Virginia since 2004”.
According to Wingfield, we can expect more additions to our corporate landscape. On average, 18-20 companies move into Richmond every fiscal year, and Wingfield says for 2012, “With the warming economy, we think these trends will hold.”
This expansion may also serve to counter the downsizing and failure of firms such as Circuit City during the recession, which caused a ripple effect that affected retailers, who shed 1,241 jobs. The addition of new firms into Richmond, in vital fields such as finance, software, and logistics, may do a lot to bring back other jobs in retail, food service, and hospitality. Scheeler sees this diversity in fields as tantamount to our area’s success in 2012.
“We are attractive to a number of businesses ranging from financial services and technology services to distribution,” says Scheeler. “One of the benefits Richmond has enjoyed is a more stable economy and that is due to the fact that we are so diversified.”
However, as these jobs come back, they may have to pay more to stay in our area. A recent hike in unemployment taxes on businesses means that employers now have to pay $228 per employee into the national unemployment system, much more than the $103 businesses had to shell out in 2009. Wingfield admits that this is an obstacle to new jobs coming to our area, but doesn’t think it will put a halt to our development.
There are other tidbits of good news for citizens in our area. Bankruptcy filings are dropping, the GDP is growing, and household debt is falling.
If these good signs, along with sources like JP Morgan Chase, are to be believed, we are set to see an upswing in economic recovery during 2012. Even according to the state’s own budget reports, the Greater Richmond area is ahead of the game in economic recovery. Therefore, once the economy trends towards an overall improvement, our area is statistically well-equipped to prosper off of the change in fortune before the rest of the United States.
But this promise of 2012 could be easily hindered by what transpires in Washington. If our legislative system hits another wall like the government shutdown debacle of last summer, then any progress our country has made could easily be reversed. With a payroll tax extension signed after a similar amount of hoopla, it would seem that politicians have still yet to learn their lesson.
“We’re right on the knife’s edge, and when you’re operating this close to the edge, the last thing you need is a wind to come along and push you over,” Stuart Hoffman, chief economist at PNC Financial Group told The Washington Post while the payroll tax cut issue was in the midst of a partisan brawl. “The risk is that if payroll taxes go up, it takes an economy that is comfortably in moderate growth territory and slips back.”
The “knife’s edge” is where we continue to find our economy, and if a similar debate were to result in consequences not helpful in maintaining economic growth, then Richmond, as well as the rest of America, would suffer. Large companies, both national and international, pay attention to what happens in Washington, and that plays a direct role in their decision to move operations to our city. A prolonged display of partisan bickering does not help the cause of economic recovery.
“When these debates rage on and there is no clear consensus, that creates uncertainty,” says Scheeler. “If the consumer doesn’t know if they are going to have a tax break for 2 months or a full year, they tend to be less willing to spend. When they don’t spend, the economy continues to lag, businesses don’t add jobs and that impacts consumer confidence.”
Despite the uncertainty surrounding what the financial future holds for our country, as well as locally, Scheeler remains hopeful.
“I am obviously bullish on Richmond’s financial future,” says Scheeler. “The city is doing a great job creating an environment that is welcoming to the young professionals (and empty nesters) who want to live in an urban environment.”
Perhaps the main point is that 2012 holds hope for everyone. For us, our area is trending upwards in a revival of new jobs and new opportunities, so perhaps this is the year we can finally put the hardships of the last few behind us. There are no signs that 2012 will completely wipe the slate clean, but if anything, we are set to keep rebuilding on the ground we’ve lost.
And that is more than enough of a reason to celebrate the new year.