So what’s in store for the Savannah area economy in 2013?
Predictions are problematic at this point because of some significant variables — ones that are especially frustrating since they are entirely under human control.
Of first concern is the so-called “fiscal cliff,” which the blog Calculated Risk has more aptly called an “austerity slope.”
To put it simply, there’s no deadline for action — fiscal policy can be adjusted throughout next year. Going over the cliff will not be a “crisis” in any conventional meaning of the term.
In fact, going over the cliff is the surest way to address our deficit and debt, if you view those as more important than the short-term health of the economy.
I’m assuming that in early January we will see an extension of the Bush-era tax cuts for the middle class, an expiration of the temporary cuts to payroll taxes and some other tax increases affecting a relatively small number of wealthy Americans.
We’ll probably also see some cuts in federal spending, although it’s highly unlikely that the deep cuts mandated by current law will take full effect. As much as we like to rail against federal spending, Americans broadly oppose any cuts to the most costly programs — Social Security, defense, Medicare and Medicaid.
If a messy solution to the cliff doesn’t also include a debt ceiling increase, then we could see more confidence-crushing brinksmanship in the coming months.
The likely tax increases and spending cuts will bring the federal budget a little closer to balance, but those policies will also hurt spending and reduce GDP.
Austerity is a drag.
Then there’s the more pressing issue of the impending longshoremen’s strike on the East Coast.
That labor dispute might have been settled by the time you’re reading this. Or it might be resolved, as I’m guessing, within a week.
However, any strike will damage the local economy. The longer the strike lasts, the more lasting the damage is likely to be.
That’s a lot to worry about, and we’ve already seen a couple of fairly gloomy forecasts for the Savannah area from economists at Georgia State and UGA.
But there are many reasons to be upbeat.
Reasons for optimism
First off, as I discussed in Tuesday’s column, recent employment estimates for the Savannah metro area (Chatham, Effingham and Bryan counties) show that the local job market will finish the year in far stronger shape than the consensus prediction a year ago.
Employment is a lagging indicator of economic conditions, so the recent hiring surge largely reflects business conditions going back many months. But all those added employees should significantly boost both local spending power and production in 2013.
While employment is a lagging indicator, residential investment is a leading indicator. Typically, new home construction is a key driver as the U.S. pulls itself out of recessions, but that wasn’t true in recent years because of the overbuilding during the housing bubble.
But now new home construction is contributing positively to the economy rather than dragging it down.
According to the latest Coastal Empire Economic Monitor from Armstrong Atlantic State University’s Center for Regional Analysis, the seasonally adjusted number of home building permits jumped 34 percent in the third quarter compared to the second.
Don’t look for housing starts, home sales or prices to climb quickly back to their pre-recession peaks, but we should see improving numbers in all those areas in 2013.
We will also see continued forward momentum from the significant number of major investments announced in 2012.
New hotels are planned on River Street and in other locations near the historic district. Several significant new residential projects are planned for the greater downtown area, too.
Renovations continue on Drayton Tower, which is now leasing and has a snazzy new website (www.draytontowersavannah.com). Work also continues on the new Victory Drive plaza that will be home to Whole Foods Market.
Aside from the question marks regarding the port, Savannah’s other core economic sectors seem in good shape for the new year, including tourism, manufacturing, health care and education.
Through the recession and the slow recovery, we’ve also seen the development of a strong DIY entrepreneurial spirit, a trend that bodes well for 2013 and beyond.
And a few words of caution
Of course, the recovery from the 2007-09 recession still isn’t over. It will likely be 2014 before employment reaches its previous peak, and we’re certain to see more stores and restaurants close because of the years of weak sales.
Keep in mind that January is always an especially weak month.
The city of Savannah will also have to be careful not to end up in another divisive public brouhaha if and when the search for a permanent city manager begins. We will likely also be gearing up for an important but contentious renewal of the 1 percent special purpose local option sales tax.
There are all sorts of other factors that could hurt the Savannah economy in 2013 — from the ongoing woes in Europe to hurricanes.
But we turned a small corner in 2012, and the trends generally look pretty good for next year if we can avoid self-inflicted wounds.