Here’s what a GM in the Gulf Coast told me last month when I asked him how the coming year looked. “Not bad, probably some growth; people should feel a little better about things than they do. Maybe if they watched a little less CNN...”
Not to pick on “The Best Political Team on Television,” because all cable news channels are designed to wind people up, or at least keep them in a slightly uncertain state that will all be cleared up with the next program. Or not. Clarity, even with the networks that strive for some measure of impartiality, can be very difficult to come by, which only adds to viewer irritation. The contortions involved with assembling the false equivalencies that keep the conversation going are often spectacular. Sometimes I think if these guys covered the invasion of Poland in 1939, they would have said it was really about the shooting. All sides did it.
Regarding the fiscal cliff (there’s always a brand name for the latest American crisis), it’s of particular interest to the gaming industry because it affords a glimpse at how retirement might be redefined in the America of the future. It’s hard to save $4 trillion over 10 years without taking something away from almost everyone. After the usual hardline post-election posturing, both sides got down to business late last month, and the key concession on the spending side centered on something called “chained CPI,” which would apply a less generous formula to calculating cost-of-living adjustments for Social Security beneficiaries, coming to about 2.5 percent or so less per year. Those opposed noted that SS beneficiaries didn’t receive cost-of-living adjustments in 2011 or 2012, and that the CPI itself is lacking as a yardstick for inflation as it doesn’t measure some key items, such as health care.
Still, that aspect of the proposal appeared to have some bipartisan support, a rare thing in Washington, so even if the deal fell apart, we can assume it will be revived down the road. The estimated cost of applying a chained CPI to Social Security would scale up to between $100 and $125 a month per recipient over the next 20 years, with some protection for the most vulnerable. Another cost-savings item that entered the conversation, raising the Medicare eligibility age from 65 to 67, was apparently a non-starter with President Obama, which means we probably won’t see that this time around, at least.
The bottom line for the gaming industry is something we’ve known for a long time, that older customers, in general, are likely to behave more cautiously with their money over time because they will either have less of it and/or be subject to a more uncertain entitlement climate.
Avoiding the automatic tax hikes and spending cuts that would result from failed negotiations could lead to a fairly good year in 2013. In the U.S., the more optimistic forecasts call for 3 percent growth later in the year. The positives are in housing (the indicator that MGM CEO Jim Murren calls the most closely correlated with gaming success), natural gas, low cost of credit for small business, high corporate profit margins and pent-up demand for big-ticket items such as cars and consumer durables.
On the downside, Europe’s recession (which the OECD sees continuing at least another year), China’s relative slowdown, inventory wind-downs and uncertainty over the outcome in Washington pushed the fourth quarter growth rate down toward 1 percent, which is expected to carry over into the first quarter of this year.
In the key overseas market of Macau, China’s State Information Center is forecasting a national 8 percent GDP growth rate this year and an inflation rate of 3 percent. That would be a slight uptick from last year’s third quarter rate of 7.4 percent, which was the slowest since the first quarter of 2009, right after the financial meltdown.
The potential sour note is debt overhang. “China’s economy may simply need more time to work through the bad debts in its system, and to digest the surge in credit-fueled investment that happened after 2008, so that the domestic economy can grow again on a healthier, and more sustainable basis. That may take some more time, “said Mikio Kumada, of LGT Capital Management told CNBC Asia.
Of course, China’s growth rate still remains comparably remarkable. A sluggish year is expected for Japan, which the OECD sees growing just under 1 percent. Elsewhere in Asia, the World Bank forecasts 4 percent growth for Taiwan; 3.2 percent for Hong Kong; 2 percent for Singapore and 3.1 percent for South Korea. The IMF sees India’s growth rate increasing from 5 percent in 2012 to 6 percent this year.
All in all, some reason for hope. Turn off your televisions and try to make the best of it. Life’s too short not to.