In his latest commentary, the National Restaurant Association's Chief Economist Bruce Grindy recaps how the U.S. economy has performed this year, setting the scene for the NRA’s 2013 Restaurant Industry Forecast, which will be released on December 11. Despite the considerable risks, the economic fundamentals will remain positive for the restaurant industry in 2013, if policymakers can successfully forge a path around the fiscal cliff.
Although the economy continued to grow at a moderate pace in 2012, it was never able to fully accelerate to the point where it could break the cycle of uncertainty. The 2012 story was largely the same as 2011—a solid start to the year (677,000 jobs added in the first quarter), followed by a spring slump (only 200,000 jobs added in the second quarter), more fiscal uncertainty, and many businesses and consumers choosing to remain on the sidelines until they see how the plot gets resolved.
The end result is the same game of economic chicken: many consumers are reluctant to spend until they see more substantial job growth, while businesses are often hesitant to hire until they are convinced that consumers will buy their goods and services. Moreover, businesses have the added uncertainty of future fiscal policy, which adds to their likelihood of putting hiring plans on hold.
The uneasiness among consumers is plainly revealed in their bleak assessment of the economy. In the Association’s National Household Survey fielded in October 2012, only one out of 10 adults gave the national economy a rating of “excellent” (1 percent) or “good” (10 percent). Thirty-six percent of adults described the economy as “fair,” while more than half (53 percent) gave it a “poor” rating.
Despite their uncertainty in the economy, consumers are in a much better financial position than they were in recent years. Most importantly, households have shaved nearly $1 trillion off their total outstanding debt since 2008, a decline of more than six percent. As a result, households are now devoting less than 16 percent of their disposable income to debt repayment, down from 19 percent before the recession.
In addition, while total household net worth remains about 7 percent below the pre-recession peak, it has been trending generally upward in recent quarters. Taken together, these developments help bolster the confidence of consumers and put them in a better position to increase spending levels.
On the other hand, considerable risks remain, highlighted by the impending federal fiscal cliff. Under current law, the substantial tax increases and government spending cuts scheduled to take effect in 2013 will push the economy over the fiscal cliff and almost certainly back into recession. Swift and decisive action by policymakers will be needed to even keep the economy on its current path of moderate growth.
Despite the likelihood of some headwinds, the economy is expected to continue its gradual recovery into 2013, assuming the fiscal cliff is avoided. Real Gross Domestic Product (GDP) is projected to increase at a 2.2 percent pace in 2013, while the national economy is expected to add jobs at a 1.5 percent rate. If policymakers can successfully forge a path around the fiscal cliff and agree on a plan for longer-term fiscal sustainability instead of short-term fixes, economic growth is likely to improve during the second half of 2013.
Outlook for Key Economic Indicators in 2013
Source: National Restaurant Association projections
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