Global and Domestic Developments
Could Derail the Fragile Recovery
Oceanside, CA – In our last column, we breathed a sigh of relief that there wasn’t an Arab Spring Act II and the world was free of any huge natural disaster wreaking havoc on the global economy. “The economies of many countries worldwide, including the U.S., improved in the first half of 2013 compared to the Fourth Quarter of last year, prompting economists to upgrade their outlook for the rest of the year,” noted Frank Chow, chief economist for Trade Show Executive Media Group.
What a difference one month can make! This month, with the emerging government scandals, the Federal Reserve’s abrupt talk about tapering its Quantitative Easing (QE) program, the escalating civil war in Syria, huge protest demonstrations in Turkey and Egypt, Europe in recession, China’s huge credit bubble problem, and Japan’s rapidly shrinking population and rising debt, the smooth sailing came to an abrupt end.
Will these developing squalls derail the strengthening U.S. economy? “Collectively, the eruptions create more uncertainty which causes businesses to be more cautious than they otherwise would be,” said Chow. Translation: less hiring and investment. For now, job growth is encouraging and exceeds analysts’ expectations. But at the current rate of job creation, it will still take six years to close the gap in jobs lost in the recession.
And government scandals and unrest in the Middle East may hurt the economy more if matters get worse, he noted. Since the end of May, a new scandal surfaced nearly every week: Benghazi, the IRS scrutiny of conservative groups, the Justice Department surveillance of reporters, and the National Security Agency (NSA) telephone surveillance. “If more scandals ensue, that may further erode government credibility and increase legislative gridlock,” Chow said.
A major trend in the 21st century has been the rise of Islam worldwide. “Unfortunately, terrorism by radical elements of the religion contributed mostly to this rise,” he said. “However, the Arab Spring uprisings in 2011 were a departure from random violent acts to a coordinated popular overthrow of several dictators.” He said the unrest in Syria, Turkey and Egypt appears to continue the trend. “It is too early to discern whether moderate or radical Islamists will gain more control of the governments, but it is obvious that the landscape continues to change in the Middle East.” Due to the U.S. strategic interests in that region, Chow said any large war will reverberate through our economy.
Recently, Federal Reserve Bank Chairman Ben Bernanke and other Fed members signaled the Fed may begin to taper the current QE program of buying mortgage-back and treasury bonds, which will likely put a damper on future economic growth. The housing industry has been one of the stars of the economic uptick this year. But when mortgage rates soared from a low 3% last month to over 4% in response to the Fed news, home sales suffered. Continued hikes in long-term interest rates could undo the fragile recovery in the economy.
Previously, the Fed had announced that QE stimulus would continue until the unemployment rate dropped below 6.5% or one-to-two-year inflation projections rose above 2.5%. “Since unemployment has been stuck around 7.5% and inflation is anchored at 2% or below, economists had expected the QE program to extend to 2015 — so this was definitely a shock,” Chow said. “Some economists believe the underlying economy is weak and the QE program is the only thing keeping the U.S. from another recession.”
Potential Drag on the Economy
Chow characterizes the various impacts from the implementation of ObamaCare as probably the biggest drag on the economy. “The job gains for this year have been mainly for part-timers as many businesses decided not to hire full-time employees to avoid ObamaCare penalties and higher premium costs,” he said. “Considering all the additional required coverage and mountains of new regulations, health care costs seem certain to rise dramatically.” Here is the latest information we know about the future cost of health premiums:
- In an article by the Wall Street Journal, global consultants from Oliver Wyman, a unit of the Marsh & McLennan Companies, estimated that roughly 6 million of the 19 million people with individual health policies will pay higher premiums, even after accounting for government subsidies.
- An analysis conducted by the insurer WellPoint for 11 states indicate small-group premiums are expected to increase by 13% to 23% on average.
- A report released by the House Energy and Commerce Committee says individual health insurance premiums will rise by an average of nearly 100% and in some cases by 400%. The report is based on internal documents received from some of the nation's largest health insurance companies.
- The nonpartisan Society of Actuaries recently released a report stating medical claims costs will increase an average of 32% for individual policies due to ObamaCare.
On July 2, the Obama administration announced that it would push back the deadline for large employers to provide health insurance for their workers, a key part of the health care reform, until 2015. The one-year delay stirred speculation about the possibility of further delays. On July 5, the administration rolled back requirements for new state online insurance marketplaces to verify the income and health coverage status of those who apply for subsidized coverage. “For income verification, for the first year of operations, we are providing (state and federal) exchanges with temporarily expanded discretion to accept an attestation of projected annual household income without further verification,” the rule said.
“I’m convinced the true costs of ObamaCare have been vastly underestimated,” Chow said. “I have seen no comprehensive analysis of the administrative bureaucracy needed to sustain the operation and enforcement of this new law, including the hiring of at least 4,500 new IRS agents according to a GAO report in March 2012. That number is now up to a potential 16,500 agents based on the IRS’s recent additional funding request of $10 billion,” Chow said. He noted that the ObamaCare bill lists about 159 new programs, boards and commissions. “Also, we know state and county governments are hiring tens of thousands to implement the new health care law. Finally, there are 20 new taxes created by ObamaCare that businesses will need to account for and the IRS will have to administer,” he pointed out.
Yes, “the times they are a-changin’,” as Bob Dylan would say. Uprisings in the Middle East, economic boomerangs, and the nationalization of one sixth of the U.S. economy are all important issues to the trade show industry and we will continue to monitor them for our readers.
1550 S. Indiana Avenue
Chicago, IL 60605
Phone: (312) 922-8558
Content may not be reproduced, stored in a retrieval
system or transmitted in any form or by any means
without the written permission of the Publisher.