“We’re at a crossroads”, was the catchphrase used by Dr. Jack Kleinhenz at The Middlefield Banking Company’s Annual Economic Luncheon held recently. More that 85 prominent business leaders were on hand to hear projections for the future regional and national economy. Dr Kleinhenz described the current economy as “clearly slowing ”, and pointed to softer conditions ahead as we move into 2007, due in large part to higher energy prices and interest rates that are curbing consumer spending and depressing the housing market.
Dr. Kleinhenz’ prediction for 2007 is for 2.5% real economic growth overall, as well as 3.5% expansion in industrial production. The below trend growth outlook is positive, but below its potential 3.2 percent long-term trend. Economy is heading into a mid-cycle slowdown. However, he noted that history suggests that when economy is heading into a soft landing the risk of a harder landing is high. He argued that job and income growth, business investment spending, increasing exports and the recent decline in energy prices are likely to prevent a hard landing.
In discussion of our auto industry, Dr. Kleinhenz pointed to the current cost of an American made car which largely supports the retired automobile workforce and does not necessarily reflect the quality of the car. “Northeastern Ohio auto suppliers need to market to foreign auto makers to keep up”. There will be further retrenchment as the Big 3 consolidates. However, he reminds us that while personal income remains strong, the population grows and Americans continue their love affair with new cars, we will still buy new cars, perhaps trading for better economy models, whether foreign or domestic.
Elections have given way to a return to business as usual, yet Ohio will continue to experience slower economic growth than the rest of the country. Gridlock in Washington is expected, which in turn should be good for investors. Compared to the nation, Ohio lags behind in the areas of employment, higher education, and per capita income. As a result, the Ohio economy will continue to struggle. While we remain a center for industries like healthcare, agriculture and technology, we do not have enough high quality jobs to support continued growth of our area. Ohio needs to continue to be an incubator for new business start-up and to foster innovation and entrepreneurship. Most importantly the State needs to focus on creating and sustaining a highly skilled and productive workforce. .
An important and changing aspect of our local and national economy is the housing industry. The steep drop in housing should continue but we may be nearing its bottom. Dr. Kleinhenz expects several more months of pain ahead before the excess supply is in balance with demand. . As consumer confidence cools, and heating and gas prices remain high, the prospective buyers dwindle and speculators have left the market. Although not as bad as predicted, housing starts for 2007 are projected to be just slightly less than in 2006, 1.7 million as compared to 1.87 million in 2006 Demographics. The current moderate rates are still attractive compared to mortgage rate of the late 80’s, which points to a good long-range forecast for housing. Positive indicators to this end are continuing job growth and relatively low unemployment, “Gen-X” buyers who don’t want to be left out of the market, and a growing immigrant population.
Jack Kleinhenz, PhD of Kleinhenz & Associates, Inc. and Weatherhead School of Management Economists has been recognized for his on-target forecasting and has been The Middlefield Banking Company’s featured speaker for three consecutive years.
For more information, please contact Jay Giles of The Middlefield Banking Company, sponsor of this highly anticipated yearly event. He may be reached at 888.801.1666. The Middlefield Banking Company was established in 1901 and serves the Geauga, Portage and Ashtabula counties with a full line of consumer and commercial financial products and services. The bank’s newest branch is opening next month in Newbury, Ohio.