Economy: Slump to drag on?

Amid some glimmers of hope, data released this week has confirmed to some experts that we could be at least 16 months away from pulling out of this persistent and punishing recession.

We’re spending considerably less in stores and this trend will be compounded when public sector pay cuts kick in. 

Earlier this year, Bermuda College economics professor Craig Simmons said he was looking for four consecutive months of real growth in the Retail Sales Index as a sign that the slump is finally over. But the numbers are moving the other way.

All eyes will be on the Throne Speech today for signs that job creation measures and policies aimed at business growth will lift us out of the gloom sooner rather than later. 

Yesterday, Finance Minister Bob Richards intimated that 420 Bermudians had landed jobs between April 1 through September 30, when the Payroll Tax Amendment went into effect. But hang on, cautions the PLP, these are not all new jobs.

As the parties trade barbs, some of the new numbers speak for themselves: On Wednesday, the Retail Sales Index for September was released showing a 4.4 per cent decline, but after adjusting for inflation, retail sales were down 6.3 per cent. 

With the Civil Service 4.5 per cent pay cuts to be reflected in October’s Retail Sales Index, will Bermuda, in Mr Simmons’s scenario, have to wait until at least January 2015 to begin the long climb out of the five-year recession?

Or will new jobs and business growth pull us out before then?

Cordell Riley, managing director of Profiles of Bermuda, told the Bermuda Sun: “Retail sales is a key economic barometer and the outlook going into 2014 is not positive.”

He added it will be difficult to quantify the exact impact of how a civil service pay cut will affect the Retail Sales Index over the next 12 months, but said that there are a few natural assumptions that should hold true.

“Given that there are approximately 5,600 persons directly on the government payroll (not including quangos), easily  $1.5 to $2 million per month has been taken out of circulation. Unfortunately for the retail sector, there’s not likely to be much of a recovery until disposable income returns to the average Bermudian, and that doesn’t appear to be any time soon. And with the Finance Minister hinting that more medicine is coming in the 2014/15 Budget, things could get worse.”

Peter Everson, chair of the Chamber of Commerce’s Economics Division, is more optimistic.

He is hopeful that Bermuda has reached the bottom of the recession and that the economy would start to recover soon.

Mr Everson said the Retail Sales Index is a combination of the amount of money people have to spend and the number of people living in Bermuda.

With regard to the civil service pay cuts, he said: “If people are earning less, it will show through with reduced spending.”

Mr Everson said government employees’ reduced spending will reduce retail sales but the other side of the coin is the pace at which new jobs are created. “The question is: ‘How quickly new businesses get up and running?’

“It will be important to see what happens over the winter months, but I would be expecting to see new businesses up and running next year.”

Mr Richards said the 420 new hires is a clear sign the stimulation “measures taken by this Government to encourage and promote the employment of Bermudians is bearing fruit”. 

He added: “I am confident that during the next year and a half many more Bermudians will find employment as we work with the private sector to promote jobs and opportunity and get our economy back on track.” 

Shadow Finance Minister David Burt said the hires were not necessarily a sign our economy is on the right path: “The Payroll Tax Exemption provides a tax break for any Bermudian who is hired, who may have been previously unemployed for three months or more. This does not mean 420 new jobs were created. Many of these hires are to fill vacancies caused by retirement or regular turnover in the job market (terminations/resignations). Also, many of the jobs were seasonal/temporary jobs, in tourism related industries as we saw from the figures released in August.”