For the Record Beth Ann Bovino SL Magazine October 2013




“One of the bright spots I see is that the private sector has been able to absorb two fiscal shocks and still spend, invest and hire.”

Beth Ann BovinoBeth Ann Bovino was recently named U.S. chief economist for Standard & Poor’s Ratings Services, where she develops U.S. economic forecasts, writes popular publications on the U.S. economy, and is known for her exceptional ability in forecasting economic trends. Prior to joining Standard and Poor’s, Bovino worked on economic and market research with Sungard Institutional Brokerage, UBS Warburg and the Federal Reserve. She has a doctorate in economics from Columbia University, a master’s in international and development economics from Yale University, and a bachelor’s degree in economics from the Wharton School at the University of Pennsylvania.

STATE LEGISLATURES: What are the most formidable challenges facing the U.S. economy?

BOVINO: There are a few things that weigh on my mind. Top of the list, of course, is what is happening in Washington, D.C. Now that the U.S. government failed to approve another continuing resolution, the federal government is shutdown, with many workers furloughed without pay. On top of that, the Treasury hits the debt ceiling soon. Both events weigh on the economy and certainly cause businesses to be concerned and hold back on spending and investing.

SL: What else concerns you?

BOVINO: Other factors at play include issues surrounding Europe. Could what’s happening with Europe—their debt ceiling and sovereign crisis—show up on U.S. shores and cause banks to hold back on lending as well? And the final thing that worries me is what’s happening with the labor market. We are seeing an improvement, but we still have a lot of people unemployed, and for a long time. The longer they stay out of work, the more their skills are hurt and the more likely it becomes that when they do get a job, they will have lower wages.

SL: What are the greatest strengths in the U.S. economy?

BOVINO: After four years of holding back on spending and saving a bit more, businesses are sitting on a lot of cash. This puts us in a good place. One of the bright spots I see is that the private sector has been able to absorb two fiscal shocks—the sequestration and the fiscal cliff deal in January—and still spend, invest and hire. Businesses have added 200,000 jobs a month, even with sequestration. That means people can spend a bit more, which they are doing.

SL: What effect will further gridlock in our nation’s capital have on the national economy?

BOVINO: Another factor just starting to play into the economy is furloughs. Furloughs started kicking into full gear in July. When people, in this case government workers, have smaller paychecks, that might be a weight on consumer spending down the road.

SL: During the last debate over the debt ceiling, Standard & Poor’s downgraded its U.S. debt rating. What are the prospects for another downgrade?

BOVINO: The decline in the effectiveness and predictability of fiscal policymaking was the prime reason for the 2011 downgrade, so that’s already factored into the current rating. With the economy actually getting stronger and stronger, the rating group has removed the negative outlook on the AA+ rating. That means they now believe there is less than a one-third chance of another downgrade—an improving scenario. They also, however, made it clear that if political brinkmanship becomes more extreme or deficits widen, via rollbacks on sequestration, for example, without offsetting measures, that would raise risks to the U.S rating.

SL: Which economic sectors look the most promising?

BOVINO: Energy. Energy is small in the United States, but it’s growing, and I expect it will develop even further. U.S. energy production is predicted to be the largest in the world, surpassing Saudi Arabia. Energy production helps bring manufacturing back to the United States. It also lowers electric bills—all positive. It also has an effect on infrastructure. Pipelines need to be in place, railroads need to get this energy out across the country, and we need to be able to export it, as well. All this strengthens manufacturing, and will continue to do so down the road.

SL: Which economic sectors concern you most?

BOVINO: Consumer spending. It is a large chunk of the economy, and we need to see jobs coming back. Right now the 7.4 percent unemployment rate may be a lot better than the 10 percent we saw just a few years ago, but we need to get back to normal levels of around 6 percent. That seems to be a ways away.

SL: How does an aging workforce affect the U.S. economy?

BOVINO: During the recession, as baby boomers saw their nest eggs start to shrink, they continued to work. But eventually, they do have to retire, and that is a particular concern for the federal budget. In 2010, four workers were able to pay for the retirement benefits of one retiree. But in about 20 years, there will be only two workers for every one retiree. That’s going to be a big weight on public finances and something certainly to consider down the road.

Editor’s note: This interview is part of a series of conversations with national leaders. It has been edited for length and clarity. The opinions are the interviewee’s and not necessarily NCSL’s.

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