As business people, we must constantly be concerned about the economy. We must take reports from activity in the recent past and combine it with projections for the future, stir in a grain of salt, and use the product to help shape our decision making. To make sure that we are all as informed as possible, we want to dedicate this week’s blog post to an update on the state of the economy.
The National Economic Outlook
On a national scale, things seem to be coming together very well from an economic standpoint. The National Association for Business Economics released some figures from a survey that polled economists and business people throughout our nation. The results predict that gross domestic product (the sum of the value of all products and services produced within a nation’s borders within a given year) will increase 3.3% this year versus 2010. While that seems like a small figure, realize that it represents billions of dollars that will be produced by business people and distributed out via payroll and taxes before the cycle starts over again. Let’s review some of the recent events and possible future happenings that will fuel this growth in GDP.
- Last month service industries throughout the U.S. expanded at the fastest rate since 2005!
- Retailers such as J.C. Penney and Macy’s experienced same-store sales growth in February 2011, which beat out most analysts’ predictions for those sectors of retail merchants. This indicates increased consumer confidence and disposable income, which is good regardless of which products/services you sell.
- Growth in labor markets was evidenced by both fewer unemployment claims and projections showing growth in employer payrolls.
- Local Tempe, Arizona-based supply management association ISM reported that manufacturing in February 2011 grew at the most rapid pace that it has since May of 2004.
Economic Outlook Here in the Grand Canyon State
For business owners and managers in Flagstaff and Tucson, we are primarily concerned with the local economic outlook. Obviously the national news gives us reason to be optimistic, but local factors will affect our bottom lines first. Some recent legislation from our state legislature and governor will bring some very business-friendly changes.
- Beginning in 2014, the corporate tax rate (state tax not federal) will begin to be reduced over a three-year period, until it is 5%. This change from the current 7% rate means that a substantial amount of your profits will stay in your possession.
- Industrial and commercial property taxes are set to drop a touch. The current assessment ratio (a figure combined with the face-value appraisal of a property to determine tax rate) of 20% will decrease to 18% between 2013 and 2017, saving property owners on taxes and possibly giving business owners more leeway to negotiate reduced rent.
- Some tax relief is also on the way for some Arizona-based manufacturers. Right now you pay a higher tax rate if you manufacture a product in Arizona but sell it in another state. Over the next few years, this taxation penalty will be reduced (not entirely yet still reduced), making life a bit easier for those who make the products that people need.
With a brighter national and state outlook, it appears that there are promising things in store for the Arizona business community. We are in the beginning stages of a period of growth, according to all sides. With growth comes the need for additional staff to fill your orders and please your customers. The recent economic conditions have taught us to err on the side of caution. The best way to do that from an employment standpoint is to hire slowly and use temporary labor. This gives you a chance to ensure that you really do need new staff and even try out new employees before you hire them.