Issue link: https://tradeshowexecutive.epubxp.com/i/107551
TR E N D I NG & S PE N D I NG SPONSORED BY A Recession is Not in the Cards but Subdued Trade Show Growth is BY DARLENE GUDEA, president Oceanside, CA – Afer two months of daily warnings about national economic calamity unless the fscal clif issues were resolved, the noisy ordeal ended in a whimper with the problem essentially being kicked two months down the road. "Te incompetence of America's political leaders were on full display," said Frank Chow, chief economist for Trade Show Executive Media Group. "With the economy treading water and mired in more than $16 trillion in federal debt, a compromise deal got taxpayers modestly higher payroll taxes, tiny spending cuts, $64 billion in tax pork, and sadly no reform." And.... the debt ceiling decision is postponed until April. Te Democrats are asking for $1 trillion more in taxes, while Republicans are demanding real spending cuts. "As a result, we are at the exact same place when the clamor about the fscal clif frst started," said Chow. "Tis is a shame because the economy is showing signs of renewal and could use some support." Even though the government essentially did very little, the fnancial markets responded positively to the stalemate. Investors and companies breathed a sigh of relief that future economic prospects are relatively unscathed as the two political parties neutralize each other. Chow said this pattern of governing will likely persist when eventually addressing sequestration (mandatory spending cuts), the debt ceiling, and the expiration of government funding later in 2013. Many tax experts and analysts suspect any true constructive reform in 2013 has faded for a needed overhaul of our tax system or addressing the burgeoning budget defcit and the long-term viability of Medicare and Social Security. "I suspect the deal has reduced the odds of fundamental tax reform this year," said Donald Marron, director of the Tax Policy Center and former senior economic adviser to President George W. Bush. Beating Expectations Despite the government's failings, the economy exhibited some encouraging signs of growth towards the end of last year: December industrial production rose 0.3% from November and at an annual rate of 1% for the Fourth Quarter. Tough not particularly impressive, it occurred in the face of super storm Sandy and a recession in Europe, and provides evidence of low but steady growth. Retail sales for December climbed 0.5% which beat expectations and was the largest gain in three months, refecting momentum in consumer spending at year-end. Te NAHB/Wells Fargo Housing Market Index, which measures single-family builder confdence, rose for the eighth straight month to 47 in December and has remained there through January. Single-family construction starts rose 8.1% to a seasonally adjusted annual rate of 616,000 units in December, while multi-family production jumped 23.1% to 338,000 units. Payroll employment increased by 155,000 in December and the unemployment rate held steady at 7.8%. Tis is consistent with the monthly average jobs gain of 153,000 for all of 2012. Why Housing Offers the Keys to a Robust Recovery Ironically, the housing industry, along with oil and gas drilling, may be the economy's best bet for a more robust recovery, said Chow. With continual improvements in construction and prices throughout 2012, home building is once again contributing to economic growth. In the Tird Quarter, home building was responsible for 10% of the total GDP growth of 3.1%. "Tis is remarkable, Darlene Gudea, PRESIDENT Frank Chow, CHIEF ECONOMIST given it is only 2.7% of the entire economy," Chow pointed out. He said the National Association of Home Builders (NAHB) December Housing Starts report, which showed the highest level of new home production since June 2008, confrms the continuation of this trend. Also, the NAHB/First American Improving Markets Index (IMI) for January added a net 41 more markets to the 201 in December. Te total of 242 represents two-thirds of all eligible metro areas. A metro area makes the IMI list if these three indicators improve for at least six months: single-family housing permits, employment and home prices. With the Federal Reserve keeping interest rates at historical lows, the biggest threat to the upbeat housing trend is the possible elimination of the mortgage interest deduction when sequestration talks resume in Congress. Already, the fscal deal reinstated the Pease itemized deduction phase-out. Tis rule will limit the value of itemized total deductions, for taxpayers above $300,000 in adjusted gross income ($250,000 if single), to three cents for every dollar above the threshold amounts. "Tis rule should have only a small efect on housing demand," said Chow. "However, its reinstatement suggests policymakers are eyeing itemized deductions, like the mortgage interest, as potential revenue raisers." Te fscal deal also saw the expiration of the payroll tax holiday. Some analysts estimate the tax increase, which funds Social Security, would reduce disposable income by $120 billion this year, with the average American household having $18 to $20 less to spend each week, or $900 to $1,000 a year. With the economy likely growing about 1.0% in the First Quarter, Continued on page 26 www.TradeShowExecutive.com | February 2013 25