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Confident consumers and businesses driving a slow economic recovery

Something unusual is happening at Dimmitt Chevrolet: It's hiring again.

Last week, 15 new employees cycled through orientation, the first such session for new hires at the Clearwater dealership in eight months.

Sales are picking up, and the flow of tire-kicking browsers is double what it was a year ago when the dealer was slashing jobs. Its inventory of one popular vehicle, the Equinox, ran out, leaving three buyers last week waiting for a new shipment.

"We sense a snap-back, and that's why we have staffed up to be ready when it happens," said Dimmitt partner/general manager Sam Pilato. "We're betting this (rebound) is a long-term thing."

Feeling better about the economy?

Yes, many small businesses are still struggling, another round of foreclosures looms, and Florida seems on an inexorable path toward posting the highest unemployment rate since the state began tracking joblessness in 1970.

Few economists are convinced the words Florida and prosperity will be readily paired again any time soon.

Yet, as Dimmitt Chevrolet attests, we may finally be breaking through one of the toughest barriers to crawling out of this recession: the psychological one.

More consumers and business leaders are buying the premise that the worst has passed. As evidence, look at some recent economic reports:

• Consumer confidence in Florida jumped to the highest level in two years in January, researchers at the University of Florida reported last week. Nationwide, confidence reached the highest level in a year. One in five Americans believes the economy will improve in the next six months, while only one in 10 thinks it will worsen.

• Unemployed managers and executives are starting up businesses at the fastest pace in four years, according to outplacement firm Challenger, Gray & Christmas.

• Staffing agency Spherion said its Florida Employee Confidence index rose sharply last month. About 27 percent of workers said they believe the economy is getting weaker, down from 44 percent a month earlier.

• Most private companies are optimistic about the U.S. economy, according to a global survey by Grant Thornton released last week. The survey of 7,400 private firms in 36 counties concluded that, by a 2-1 ratio, more U.S. private businesses plan to increase their work force this year than decrease it.

There's growing reason to feel we're moving out of our collective economic funk, most notably Friday's report showing the economy grew 5.7 percent in the fourth quarter of 2009, the fastest pace in six years. Manufacturers are replenishing inventories that were whittled down over the past three years.

At the same time, Small Business Administration loans in Florida have jumped significantly. The SBA's South Florida district, which includes most of the Tampa Bay area, backed about $149 million in business loans in the fiscal quarter ended Dec. 31, up 86 percent from a year earlier.

Francisco Marrero, the SBA's South Florida district director, said the quarterly numbers "clearly demonstrate that the Recovery Act has not only stopped the decline in small-business loans that we were seeing a year ago, but is responsible for a resurgence in SBA-backed lending."

Put all the barometers together and it points to a nascent recovery.

That would be a nascent — but very long — recovery, said University of Central Florida economist Sean Snaith.

"We're in a transition period between the worsening coming to an end and the improvement in labor markets starting to set in," he said.

"The economy is what it is. The unemployment rate is what it is. You can't spin that into a happy thing. But as data shows that the worsening has slowed and we're actually seeing signs of improvement, that will feed into the process."

Snaith, who runs UCF's Institute for Economic Competitiveness, said the high jobless rate notwithstanding, there's no doubt we're feeling better about the country's prospects.

"Compared to where we were a year ago, the situation is much less dire and much less uncertain," he said. "That, in and of itself, is responsible for some of the improvement in consumer sentiment we're seeing."

The same phenomenon is happening north of the border. The Conference Board of Canada expects to report surprisingly high consumer confidence numbers Monday, according to Glenn Hodgson, the board's chief economist. "We had to go back and recheck their numbers because we were surprised, but for the right reasons," he said.

Why does consumer confidence matter? Because consumer spending drives 70 percent of the U.S. economy, and people who are feeling better about the country and their own personal finances tend to spend more.

Hodgson said consumer confidence is less a factor in driving spending than whether one has a job or is getting a pay raise. "But it does have an explanatory power you can measure statistically," perhaps driving 10 percent of spending, he said.

He considers consumer sentiment a leading indicator that we're seeing an economic shift, along with data showing manufacturers are starting to increase inventory again.

Pilato, the Dimmitt Chevrolet general manager, is seeing a ripple effect in business that started building in December. More people are opening up their wallets and finding it easier to get a car loan.

"I see the banks willing to stretch a little on financing," he said. "For a long period, there was no financing if you needed it. … They're definitely back in the water now."

Pilato recognizes recovery can be an agonizing and slow process.

In that process, unlike consumer sentiment, unemployment is a lagging indicator. Unemployment tends to rise even after businesses are posting improved financial statements.

The wild card in the equation is just how high Florida's jobless rate will go. If it climbs too high, it could not only stall recovery but provoke a dreaded double-dip, pulling the state back into a recessionary spiral. Florida's unemployment rate is currently at 11.8 percent and is widely expected to reach 12 percent soon.

In that climate, positive thinking has its limits in spurring the economy. Consumers can't spend what they don't have, at least not as readily as during the era of easy credit.

That's one reason that Arnold "Arnie" Heggestad, finance professor at the University of Florida and director of UF's Center for Entrepreneurship and Innovation, isn't convinced the economy is heading north just yet.

Not when he sees so many MBA students he works with unable to land a job. Not when he sees students stringing out their college career another year or two in hopes of graduating during a healthier job market.

"My daughter is in her last year of law school, and some of her friends haven't even had an interview yet," Heggestad said. "America has always come back, and I'm sure that will happen again … but I'm not seeing a whole lot of pick-up yet."

Jeff Harrington can be reached at jharrington@sptimes.com or (727) 893-8242. Follow him on Twitter at twitter.com/jeffmharrington.

Confident consumers and businesses driving a slow economic recovery 01/29/10 [Last modified: Monday, February 1, 2010 3:00pm]
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