CHICAGO -- By a show of hands, attendees at the 2013 NACS State of the Industry Summit were largely pessimistic about the current state of the economy. And presenter Dr. David Nelson, professor of economics at Western Washington University, and founder and president of Finance & Resources Management Consultants Inc., found some reasons for business leaders to be glum, as he presented his annual check of the economy's vitals.
- GDP growth has paced only 2.1% per year--1.6 percentage points lower than five years ago, before the recession began. It's the extension of a more recent pattern. While past recessions have typically followed a distinct "V" shape, with the economic decline followed by a quick recovery, the Great Recession and those just before it followed a "U" pattern.
- The labor force continues to be down several million jobs. Consider that the economy has only recovered one-half of the jobs from its past employment peak. It has been adding an average of 100,000 to 150,000 jobs per month, "enough to keep up with population growth, but not dramatically lower the unemployment rate," said Nelson.
- The unemployment rate is down almost two percentage points from its peak during the recession, but still two percentage points higher than what is considered "normal." On this last point, while the drop in unemployment could have raised the typical convenience store's in-store sales by 1.7% or $1,500 per store per month, it failed to have this impact, largely because of a decline in the workforce participation rate, which made the unemployment rate appear better than it actually was.
From Nelson's vantage point, there are some reasons to be optimistic after the nation survived a deep recession--or one he described as "a garden-variety severe recession"--and is recovering at an incredibly slow pace. Examining multiple measures, for example, unemployment is down one-half of a percent or more. The housing recovery seems to be in full swing, the manufacturing sector is growing, cheap natural gas is making the United States an energy powerhouse, and domestic automakers are performing well. "We're moving in the right direction," said Nelson. "There is a lot of positive momentum in the economy."
The pace is currently so slow because of a few factors--consumers' slow recovery of their net worth, the expiration of the temporary payroll tax cut--which are hitting lower-income consumers especially hard. Highest-income consumers saw a tax increase, although they also saw a few tax breaks: the estate and gift tax exemption of $5 million per person was made permanent, for example, as was credit toward employee education assistance.
With this in mind, c-store retailers have an opportunity to position their offering in a way that meets the needs of the less and/or more affluent, Nelson suggested. Dining out is commonly cited as the first area that consumers will cut when their budgets are pressured; here, c-store operators can position themselves as an economic alternative to casual chains, which have seen three consecutive years of declining sales.
"They're looking for a lower-cost alternative to meet their needs," he said. "It's not negative if you can capture the value proposition."
The sequestration, which will amount to about $50 billion in cuts for 2013, or one-half of a percent of GDP, is not huge relative to the current budget. But its impact could largely depend on how the federal government will carry out its cuts; taking the furlough day route for federal employees, for example, is less economically damaging than laying off workers, which Nelson estimated could number in the "few hundred thousand."
Expect the biggest impact of the sequestration on GDP to hit during second-quarter and third-quarter 2013, Nelson said. "We may be in a flat spot over the next six months."
During the recession, the government was a stimulative force; going forward, expect it to be a restraining force on the economy. That being said, "The world seems to be going on just fine," said Nelson, noting that while spending on the public sector is shrinking, the private sector is growing, "a positive for the economy."
One especially big positive for businesses in today's financial environment is the ability to borrow money cheaply. As Nelson explained, banks are loaded up with liquidity, and indeed business loans have jumped 21% between second-quarter 2010 through third-quarter 2012. "Banks are competing aggressively for your business with terms you've never seen, and likely never will see again," said Nelson. "If you're not borrowing now folks, I think you're missing a huge opportunity."
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