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Snaith

Uncertainty has led to long recovery

By Mark Basch, Contributing Writer

Maybe you haven't noticed, but the U.S. economy has been in a recovery stage for almost 41/2 years since the "Great Recession" ended.

"It doesn't feel like we've been in recovery for four and a half years," said Sean Snaith, director of the University of Central Florida's Institute for Economic Competitiveness.

"Why is it so weak? Why has it been this way?" Snaith asked at an Economic Roundtable of Jacksonville luncheon Tuesday at Jacksonville University.

He believes that continued uncertainty is weighing down economic growth.

Snaith said he's considering writing a novel about economic uncertainty called "Fifty Shades of Gray."

The gray is the color of the clouds hovering over the economy.

"The novel's a joke, but uncertainty is not," he said.

Some economists are putting uncertainty in writing. Snaith said a trio of economists from Stanford University and the University of Chicago have developed an "economic policy uncertainty" index to quantify the level of uncertainty that is affecting the country.

The index measures three factors: major newspaper coverage of policy-related uncertainty issues, the number of federal tax code provisions that are set to expire and disagreement among economists in a professional forecasters' survey.

Snaith said the index over the years shows that uncertainty usually declines when a recession ends but since the last recession ended, uncertainty has actually risen.

This uncertainty leads to lower private investment, lower industrial production and "much lower employment," he said.

One piece of uncertainty affecting business decisions was removed a year ago when the U.S. presidential election was decided, but several issues still remain, he said.

Health care and financial reform are two issues that are leaving businesses hesitant to move forward, Snaith said.

"We needed to do something," he said. "My concern is that we did too much too quickly."

The Affordable Care Act mandate that companies with more than 50 full-time employees provide insurance for workers is already having an impact, he said.

"When you change the rules of the game, the way the players play the game changes as well," he said.

Snaith saw the impact at one Central Florida company. Darden Restaurants Inc., which operates Red Lobster, LongHorn Steakhouse, Olive Garden and other chains, said last year it would reduce the hours of some restaurant employees so they would not be eligible for health insurance.

Snaith said Darden faced a backlash after that announcement. "This was not the best PR move for Darden," he said.

Other companies are learning a lesson from Darden, he said. Many are considering a similar move but to avoid bad publicity, they're not going to make an announcement about it.

Another federal law creating uncertainty is the Dodd–Frank Wall Street Reform and Consumer Protection Act. As financial institutions wrestle with new regulations, they have responded by reducing credit flows, making it difficult for economic expansion.

The continued negotiations over federal budget issues are also creating uncertainty. Snaith doesn't view the constant deadlines and threats as a "fiscal cliff," which would send the economy off the deep end, but instead he sees a "fiscal flight of stairs" as the country bounces from one step to the next.

"It's never stopping," he said, and the continuing short-term fixes don't address long-term issues like entitlements that would remove some uncertainty.

One issue that's out of the U.S. government's control, the fate of the euro currency in European countries, is another issue of uncertainty for U.S. businesses, he said.

While these uncertainties are affecting business decisions, a major factor affecting consumer behavior is household wealth, Snaith said.

While the stock market has recovered its losses from the recession, more people have been impacted by the drop in housing prices. That market still has a way to go to rebound to pre-recession levels and it's weighing on consumers' minds.

"It has a bigger bang when it comes to consumer spending," Snaith said.

The Florida housing market is improving but Snaith said much of the activity has been fueled by investors, rather than homeowners, buying properties. In September, 42 percent of home sales were done on a cash basis, indicating a large level of investor activity.

"A normal housing market would see about 10 percent," Snaith said.

That raises concerns about the housing market continuing its comeback. At some point for the market to sustain its improvement, the market will have to turn from investors looking to make a profit to owner-occupied home purchases, he said.

"That's the thing I'm most concerned about — the passing of the baton," Snaith said.

mbasch@baileypub.com

(904) 356-2466

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