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North country economic forecast for 2012: partly sunny, partly cloudy

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Like everyone else, I am curious about what 2012 will hold for the world, and especially for our slice of it. After all, 2011 was not a great year for us, although it was better than the previous two by most economic measurements. Now 2012 shows some promise, but some risk as well.

There will be an economic forecasting event at 8 a.m. Jan. 24 at which I will offer more detailed analysis and forecasts, so I will skip the details here in favor of broad themes. If you want to attend, you can visit the Greater Watertown North Country Chamber of Commerce website at www.water townny.com to register. The event is sponsored by North Country Capital LLC, Rose & Kiernan Inc. and the Watertown Daily Times and NNY Business magazine.

Most of the major economic research groups are guardedly optimistic about the chances of avoiding a second recession for the U.S. in 2012 but less optimistic for Western Europe. Most of our primary national economic indicators are inching up slowly as the economy begins to produce more jobs. A strong holiday shopping season has pumped retailers a bit, and durable goods orders are slowly strengthening.

So what do things look like for us in Northern New York? We will, of course, suffer if the rest of the nation slips back into recession, but otherwise things look bearable for us. There is no reason to expect strong recovery and growth, but things could be worse.

The European debt crisis is of concern to every world economy, but it offers a particular challenge to many businesses in the north country. A severe challenge to the euro and an inability to manage a bailout of deeply indebted Eurozone members is likely to cause investors to rush away from the euro and toward the U.S. dollar. At a time when our fundamentals should be causing the U.S. dollar to slide, we could see strengthening instead. That is of specific concern when the U.S.dollar rises against the Canadian dollar. A stronger U.S. dollar means higher prices for Canadians visiting the north country and reduced spending in the retail and tourism sectors.

While the Canadian banking system is stable and government debt is quite manageable, the average Canadian household is deeply in debt and under pressure to reduce spending. That, coupled with a stronger U.S. dollar, promises reduced Canadian spending in our retail and tourism markets. Canadian consumer confidence closed 2011 at its lowest in 2.5 years. We have been enjoying a relatively strong Canadian dollar in 2011 and steady spending by Canadian visitors but probably will see less in 2012.

The unemployment situation in the north country has improved markedly since this time last year, but we are still near the bottom in state rankings, according to the state Department of Labor. Jefferson County is 59th out of the 62 New York counties (tied with Fulton County) in unemployment rankings, with a December unemployment rate of 9.4 percent. We were at 11.8 percent last February, however, so we have the capacity to recover quickly as the economy strengthens.

St. Lawrence County is not doing much better at 58 out of 62 and a December rate of 9.3 percent. Lewis County is the bright spot in the region with a ranking of 51 and a December rate of 8.6 percent. These numbers look like what we experienced in the early 1990s. In 2012 I expect continued progress, but we will not get back to our pre-2008 rates.

Energy costs remain high with no suggestion of significant drops in the future. At the same time, interest rates are very low and many central banks (including ours) are pumping cash into their respective economies. This means that investments in large alternative energy projects, such as wind farms, are likely to continue to attract investors. We can expect continued interest in wind farm development in our region, with all the economic and social turmoil that brings.

Arguably one of the most significant elements in our economy in 2012 will be the return of deployed soldiers to Fort Drum and the impact of their spending in the community. The 3rd Combat Brigade is scheduled to return to Fort Drum in March. That will mean the presence of all three combat brigades at Fort Drum at the same time — something we have not seen since the arrival of the 3rd Brigade to Fort Drum. Anyone who reads this newspaper must be aware of the massive effort under way to create housing choices for those soldiers and their families, but local businesses also need to consider how to meet other needs as well.

Typically, soldiers returning from deployments demonstrate some spending on pent-up demands — restaurant dining, shopping and family recreational activities. When those troops move into new housing, it can trigger more demand for furnishings and related items as well. While that is good news for retailers near the post, they also need to recognize that the relentless growth of new national chain businesses is likely to continue.

National chains have generally suffered in the past three years of recession and crisis. Some, like Sears and Kmart, are contracting, but others are trying to expand into new markets to offset losses elsewhere. Demographically, we remain an underserved market by many measures, and that will continue to draw new national entrants into the Jefferson County economy. Our retail sector will see growth overall, but increased competition will make the lives of individual retailers tougher than ever.

Land values in the region will continue to languish, with the exception of housing prices near Fort Drum and possible occasional bursts of activity around a major wind farm development. Other than the Fort Drum soldiers, our regional populations are declining over time, and there is relatively little increase in demand for residential and farm land.

Last year was a year of gradual economic recovery for us, with some job creation and small increases in property values and retail sales over 2010. This year promises more of the same, but with a boost from Fort Drum and a threat from possible economic troubles in Europe. It is a good year for businesses to develop and execute carefully targeted growth strategies rather than launching major general expansions or sales campaigns.

Good luck in 2012 and I wish you profits and growth.

Greg Gardner is an associate professor of business at SUNY Potsdam. His column on business issues in the north country is published monthly in Money Matters. Email him at ggardner@wdt.net.

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