Economic uncertainty for now, but reasons for optimism in W.Va. - Beckley, Bluefield & Lewisburg News, Weather, Sports

Forecast: Economic uncertainty for now, but reasons for optimism in W.Va.

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CHARLESTON, WV -

Uncertainty – by business leaders and consumers - is impeding growth in the United States.

The uncertainty is due to many factors, according to R. Andrew Bauer, including U.S. fiscal policy and regulatory changes, slower growth abroad and a weaker outlook for Europe.

Bauer, the Senior Regional Economist at the Federal Reserve Bank of Richmond, spoke on his "U.S. Economic Outlook" at the 20th Annual West Virginia Economic Outlook Conference held Oct. 1 at Embassy Suites in Charleston.

But there is reason for optimism, he said.

Bauer expects moderate growth numbers for the second half of 2013 and 2014. Consumer spending should grow at a moderate pace, opportunities for growth and expansion will continue to drive business investment and the housing recovery should continue to move forward.

Inflation is expected to remain low with longer term inflation expectations remaining stable, Bauer added.

With consumer spending being "70 percent of the economy," according to Bauer, while the labor market slowly recovers, and business waiting on a clearer picture before investing more, both are playing a waiting game that in itself may cause a slower uptick in the nation's economy.

"The recession has caused uncertainty, and we're still feeling the effects," Bauer said.

In a "wait and see" approach, with both business and consumers seeking improved economic numbers, could the lack of their activity could actually slow growth, as it skews numbers?

"If businesses are presented with a good opportunity and gaining confidence, you see them going ahead with investments and hiring," Bauer said. "But in many other cases when it's not exactly clear, we hear that they're going to just wait and see until whatever their concerns have are dealt with.

"We hear from a lot of businesses, especially in our district, about cuts in federal spending – how will it effect our local economies?  We have a lot of contractors, a lot of installations, facilities, housing impact, income growth and their business lines. Those are their concerns."

Bauer said another concern he's heard a lot about is the Affordable Care Act.

"It's a big change," he said. "It potentially affects labor cost for many businesses. It's not clear yet how that's going to play out.

"There are also a lot of businesses that are looking to hire people. But if you're not in a position where you need to hire somebody, they're waiting and seeing. They want to see how things play out and then act. Until then, it makes more sense to wait."

Bauer said the Affordable Care Act is causing uncertainty, even for businesses not impacted by the changes, bringing about the lack of confidence that's compounded by a concern about a government shut down.

"I expect that some consumers, especially the ones being impacted, will pause," he said. "Perhaps someone was considering purchasing a house or a car this week; they may wait until next month. It's going to happen sooner or later, the question is the timing of it.

"As long as you have this uncertainty, it's going to push the timing a little further. It is positive that we've seen light vehicle sales and housing sales come up as much as they have. Hopefully the current uncertainty caused by policy, higher rates will deter going forward."

There's certainly reason for optimism for West Virginians, according to Bauer.

"There is clearly a lot going on in the energy sector in West Virginia that is impacting the greater region," he said. "We're seeing changes in the U.S. natural gas sector. It's clearly having a positive impact on the broader economy.

"The natural gas prospect going forward has really changed, to a certain extent, some of the dynamics in the manufacturing sector, the energy producing sector and the electricity sector. I have heard from a number of businesses and manufacturers that the low cost of natural gas, it's made America a stronger place to do business - a stronger place to manufacture things.

Bauer said the outlook for manufacturing in America is much more positive because of cheaper energy being produced, in part, in West Virginia.

The role of WVU and its College of Business and Economics could potentially play in significant role in improving the landscape in the Mountain State, Bauer said.

"We can have a lot of discussions about economic issues," he explained. "But one of the most important issues facing the U.S. and any state or region is education. A more educated, more skilled workforce provides a foundation for future growth.

"To have the University, which is pushing hard and providing skilled workers and education, it's an important positive for the state."