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Once More, With Feeling

Regulars at annual Economic Outlook 2014 Conference are again optimistic, but say this time you should believe them.

Alabama’s business sector benefits daily from the sometimes unappreciated public sector, according to Sam Addy, director of the University of Alabama’s Center for Business and Economic Research.

Alabama’s business sector benefits daily from the sometimes unappreciated public sector, according to Sam Addy, director of the University of Alabama’s Center for Business and Economic Research.

Photo courtesy of the University of Alabama

Put three economists in a room and you’ll get 17 opinions, says Sam Addy, associate dean for research and outreach at the University of Alabama and director of the school’s Center for Business and Economic Research.

Still, he keeps doing it.

At this year’s annual Economic Outlook 2014 Conference, held in mid-January, one seer was fairly clear: Look for something like 3 percent growth in 2014 “and there’s no reason not to think it won’t sustain that for several years,” according to David Altig, executive vice president and director of research at the Federal Reserve Bank of Atlanta.

That 3 percent forecast comes primarily from the Federal Open Market Committee, the 12-member panel of Fed board governors and presidents.

Altig bases his own optimism on several developments, including an upgraded 2014 forecast from the International Monetary Fund.

“Why is IMF upgrading forecasts? Because the U.S. is getting stronger, we drive the world economy and the world economy being driven rebounds to us in a positive way,” Altig says.

He also likes how 2013 left the building. “We haven’t seen momentum like that thus far in the recovery, with the exception of the very early days when we were coming out of the depths,” he says.

Manufacturing, another bright spot, looks robust with new orders, a forward-looking metric for business investment spending, on the rise.

As always, there are caveats. Altig’s include:

LABOR. The official picture looks good, with a pace of 190,000 jobs being created a month, enough to consistently bring down the jobless rate for four years running. “But you don’t have to look that carefully to see that the labor force participation rate has fallen to 63 percent, with 12 million people on net having dropped out since 2007. There are lots of reasons to be cautious about what we’re seeing in the labor market; it isn’t as strong as the decline in unemployment is suggesting.”

CONGRESS. They’re doing better than in days of sequestration. “We’ve got a two-year (budget) deal going, there won’t be another shutdown, presumably, we do have the rollout of ACA so it’s not gone, but policy uncertainty is significantly diminished.”

AFFORDABLE CARE ACT. Fed Atlanta recently had a symposium for health care and business people, a wide-ranging group with many different touches on the elephant. “They’re as confused as anyone,” Altig says. “Putting a finger on a number or a definable impact is difficult.” A lot of the guesses so far have been wrong, including one that blamed a spike in involuntary part-time employment on ACA. The thought was that small employers would try to fly under the radar by making full-time workers part time, but anecdotal evidence now suggests businesses found that solution impractical.

The long view is that full recovery might still be five to seven years away. “It’s going to be a long recovery of the sort we’re not used to at all,” he says.

For his part, UA’s Sam Addy says he now encourages Alabamians to think in a new way about the public sector, that part of the economy controlled by government.

The public sector provides clean water, public safety, good roads, defense of property rights, all things that make the private sector work. “I think we should call it ‘darling’ or ‘honey,’” Addy says.

His cause for optimism was the last chart he showed his audience, in which Alabama’s per capita income share compared to the U.S. per capita income went from 45.6 percent in 1929 to a robust 82.1 percent in 2012.

Alabama has automotive and aerospace manufacturing sewn up, Addy says. Numbers for construction and manufacturing are improving. Congress seems disinclined to shut down the government again.

What would he change?

Addy suggested a very specific alteration to Alabama’s two-tiered budget, a nearly sacred apparatus composed of the General Fund and the Education Trust Fund. The latter traditionally has a better balance than the General Fund and has repelled raiders as formidable as George Wallace.

A unified budget would make it easier to manage incoming federal funds tied to Medicaid expansion, as well as paying the state’s Medicaid expenses, Addy says. Gov. Robert Bentley is on record as being against Medicaid expansion, believing the costs would outweigh any potential benefits.

As part of the Affordable Care Act, the federal government will cover the cost of a Medicaid expansion that should give health insurance to an additional 300,000 Alabamians. Alabama pays nothing for the first three years except administrative costs but would eventually pay a 10 percent share.

“Medicaid expansion will be sweet to ETF, but we need a new law to float some of that money to the general fund. That’s where we pay for Medicaid,” Addy says.

Seeming to address the political cynicism that created the two-tier system, Addy proposed a migration. “Why don’t we freeze tax revenues and distributions to 2013, and then of the new funds coming in put half to the way we’ve been doing it and half to a unified budget, putting the money to where the needs are strongest in any year.

“In 14 years, we would have 25 percent of tax receipts on a flexible platform. Flexibility is always an asset in planning,” Addy says.

The session’s closing remarks were made by Thomas Broughton III, president and CEO of ServisFirst Bank, who notes that Alabama’s banking picture, while not rosy, at least compares well to other Southern states.

Nationwide, 501 banks have failed since 2007, Broughton says, while Alabama had only seven failures during that period, thanks mainly to more stringent banking regulations than in other states.

ServisFirst’s bottom line has grown steadily since its opening in 2007 with a philosophy of organic growth rather than acquisition. “We do not buy failed banks,” he says. “They fail for a reason in my estimation.”

Dave Helms is copy editor of Business Alabama.

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