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Moving Past Fiscal Policy Shenanigans: A Business Focused Economic Outlook

David Taber, President & CEO American River BankFrom the office of David T. Taber, President & CEO

The team at American River Bank is your partner in business. 
Let’s continue the conversation, discover ways to maximize your business operations and get the economy moving, one business at a time. 

How much can you accomplish in 16 days?
If you’re like any business owner I’ve had the privilege to meet, the answer is a tremendous amount. Based on our recent government shutdown, I’m not sure our political leaders can boast the same productivity, ending the 16 day stalemate with a short term budget ”Band-Aid” that will stick only until early 2014, making market and economic uncertainty the definitive outcomes. Fun Fact: the last government shutdown in 1995 lasted 22 days – does that mean we’re improving?

While fiscal policy has been dominating the press, it’s regulatory and monetary policy that I believe business owners should pay the most attention to and therefore, it’s on these two topics I wanted to share my thoughts. 

Regulatory Policy and the Uncertainty Tax
First, let me say I remain a firm believer in capitalism. If we can just understand the rules we’re given by the government to play by, we can figure out a way to be successful. Hard to do, considering that from 2009-2012, 13,000 new regulations were created1, of which 739 Uncertainty Taxcurrently affect small business2, making it easy for the average business owner to feel picked upon by politicians. The Vanguard Group, an asset management firm, estimates that since 2011, the rise in new regulations has created a $261 billion “uncertainty tax” on the economy (the equivalent of more than $800 per person in the country) that has cost up to one million new jobs3.

Unfortunately, I don’t see the uncertainty around the regulatory environment dissipating anytime soon. So how can you plan your next strategic business move if the rules are ambiguous? Concentrate on what you can control and make a contingency plan for what you can’t. Having a clear understanding of how to maximize cash flow, focusing on your key financial ratios and monitoring local economic indicators in the markets you operate can go a long way in planning for growth with managed risk. Ultimately, our economy’s well-being hinges on the ability for businesses like yours to grow. 

Monetary Policy
With no inflation problems seen on the horizon and the recent shutdown’s impact on the confidence sentiment, it’s highly improbable that there will be any near term changes to the Federal Open Market Economic Projections of the Federal ReserveCommittee's (FOMC) current stimulus plan. Projections are for short term rates to remain artificially low through 2015, with no significant increase in long term rates. The Federal Reserve projects that GDP growth, inflation and unemployment rate changes will be fairly modest through 2016 and perhaps over the longer run, too. Even with the appointment and probable confirmation of a new Federal Reserve chairperson Janet Yellen looming, the FOMC is unlikely to change the current plan.

The good news here is the stable interest rate market continues to make it a good time for you to invest in your business including borrowing money for new equipment, real estate and/or strategic inventory purchases.

I wish I could offer up predictions of a robust economic engine that would spur growth for businesses. The reality is that the uncertainty in fiscal and regulatory policy, as well as tepid economic growth, is here to stay for the near term. As I mentioned, having a clear understanding of cash flow, your key financial ratios and local economic indicators are vital to growth in today’s market. 

Third Quarter Economic Update [Infographic]

The most relevant local economic indicators
What's going on with the economy?  It’s the question on everyone’s mind and one that we’re asked all the time. Each quarter our management team compiles an industry and economic report that analyzes the past six to eight rolling quarters in Sacramento and Sonoma Counties. We look at expert sources that cover three categories of Commercial Real Estate, Residential Real Estate and Employment. To read the full report, click here

Third Quarter Economic Update [Infographic]
Sacramento County
Third Quarter Economic Update [Infographic]
Sonoma County
Third Quarter Economic Update for Sacramento County Third Quarter Economic Update for Sonoma County
[Click to Enlarge] [Click to Enlarge]

1. Source: National Federation of Independent Business
2. Source: Congressional Research Service
3. Bill McNabb, “Opinion: Uncertainty Is the Enemy of Recovery”, The Wall Street Journal (New York), April 28, 2013