Forecast 2013


Overcast with clearing skies. That’s the economic forecast as businesses enter a new year. Drizzly conditions will remain at least for the first half of 2013, as consumers hold tight to their pocketbooks. Light should break through the clouds in summer and fall, though, as the resolution of critical uncertainties encourage corporate hiring, capital investment and consumer spending.

The coming year as a whole is not expected to bring significant relief over 2012. “We expect the recovery to remain lackluster,” says Sophia Koropeckyj, managing director of industry economics at Moody’s Analytics, a research firm based in West Chester, Pa. (www.economy. com). “The pace of growth will be too slow to meaningfully bring the unemployment rate below eight percent.”

The numbers tell the tale. The most common measure of the nation’s economic health is growth in gross domestic product, the annual total of all goods and services produced in the United States. Moody’s expects GDP to increase by 2.4 percent in 2013. That’s not much of an improvement over the 2.3 percent anticipated for 2012 when figures are finally tallied.

Moody’s forecast might not seem all that bad, given that the GDP increase for an economy in average growth mode is 2.5 percent. But there’s a problem: A nation recovering from a recession needs more robust expansion. “By most measures, this recovery is among the weakest in the past 50 years,” says Koropeckyj.

What’s holding things back? Koropeckyj points to a number of areas. “Fiscal restraint on the local and national level, weaker global demand, a housing market that has hit bottom but has a long way to go to become healthy, and weak income growth are all constraining a stronger pickup in employment.” Other factors are the weakening economies of China and Europe—both important export markets.

All those factors are coming together to subdue the public mood. “Consumer confidence is still at a level consistent with a recession,” says Scott Hoyt, Moody’s senior director of consumer economics.

“Consumers remain concerned about economic conditions. There is still high unemployment, weak growth in wages, volatile stocks and high gasoline prices. There are a lot of things to keep consumers on edge.”

Retail Sales

Retailers will suffer as concerned consumers hold onto their purse strings. “We expect the retail environment to be difficult in 2013, growing at some 2.3 percent,” says Hoyt. That pace represents a de-escalation from the 3.2 percent anticipated when 2012 figures are finally tallied. To put those figures in context, average annual core retail sales grew at 4.6 percent prior to the 2008 financial crisis. Core retail sales exclude volatile revenues from auto sales and gas stations.

Moody’s expects pressure on retailers early in the year because of the major weight of a constraining federal fiscal policy. While consumer confidence spiked upward a little in early fall, consumers will continue to be impacted by the anticipated terminations of two initiatives: the Social Security payroll tax holiday and extended unemployment insurance benefits. Reduced federal spending, by eliminating some jobs, will also have an indirect but significant effect on consumers.

“Retailers are most concerned about jobs and income,” says Hoyt. “The economy is not adding jobs fast enough to lower unemployment. Wage growth remains weak, and it is not putting the cash in the pockets of consumers that retailers would like to see.”

Good News

If the economy remains troubled, corporations have managed to thrive. By piling up mountains of cash they have positioned themselves for a fresh round of capital and labor investment when the time is right. “Businesses are in excellent financial health; their costs are down and they have become highly competitive and profitable,” says Koropeckyj. “Employers have little slack in their labor forces so layoffs have declined dramatically.”

Other sectors of the economy also show improvement. “Banks have never been as well-capitalized or as liquid,” says Koropeckyj. “Households have aggressively worked down their debt burdens and are meeting their obligations more diligently.”

And how about housing, that all-important driver of economic health? While still far from robust, it’s on the mend. “Residential construction and home sales have been trending up since mid-2011,” says Koropeckyj. “Residential construction-related jobs are also slowly creeping up. The months of inventory of new homes are low, having fallen below five months, and existing-home inventories have stabilized around 6.5 months, not far from the normal rate.”

Thanks to tightening inventories, housing prices are showing signs of a rebound after a dismal few years, says Koropeckyj. “Other signs of a healthier housing market include a rapid decline in the rental vacancy rate, stabilization in homeowners’ equity, and low early-stage mortgage delinquency rates.”

Additionally, says Koropeckyj, record low mortgage interest rates and the expansion of the Home Affordable Refinance Program are boosting mortgage refinancing. “That will help to free up household cash to spend on other consumer goods as well as prevent some additional foreclosures.”

Check Casher Claims Arbitrator Went Too Far


Arbitration can cut two ways. It is clear that one of the purposes of arbitration is to make economic disputes more efficient to resolve. Although that may be true, no check casher wants to be on the losing end of a sizable arbitration award. Recently, a check casher discovered just how hard it is to overturn an arbitrator’s decision.

A building maintenance company filed a lawsuit against a New Jersey check casher in connection with its cashing of various payroll checks.

The company sought, among other things, lost profits and other damages on theories of conversion, wrongful interference with business relationships, wrongful interference with prospective economic advantage, and the like.

The company alleged that the check casher failed to comply with the New Jersey Check Cashers Regulatory Act of 1993 as well as its own internal policies and procedures, all of which contributed to the claimed harm.

The maintenance company and the check casher agreed to submit to binding arbitration, which resulted in a March 26, 2007, order dismissing the pending litigation and, ultimately, an arbitration award for the company totaling $335,346.40, including interest.

The arbitrator found that the company’s trusted operation manager over several years conducted a shadow janitorial business of his own, using the maintenance company’s employees, supplies, and equipment.

The manager also cashed payroll checks for phantom employees, for payment of fictitious overtime, and for work that was not performed.

Finds Conduct Intentional

The arbitrator determined that although the maintenance company “was negligent,” the conduct of the check casher was, unfortunately, intentional. The arbitrator found the following:
• The maintenance company did not receive any cancelled checks with its monthly statements. The statement only contained names and amounts. Accordingly, there was no way for the company owners or staff to see the documents.
• The manager created the payroll by submitting a list of names, hours, and amounts to a payroll service, which in turn computed and deducted taxes and sent net checks to the maintenance company. When checks were received from the payroll service, they were given to the manager to distribute.

No testimony was offered showing that the maintenance company compared names on checks with employee applications or conducted random audits of employees’ pay or questioned them about where they worked, how many hours they worked, or how much they received.

The operations manager had the authority to use the company’s principal signature stamp, which was used to sign checks. In certain instances, the manager physically signed the company’s name rather than using the stamp.
No employee ever complained about receiving insufficient funds in their pay.

Matter of Convenience

Some employees authorized the manager or his subordinate to endorse their payroll checks and others cashed their own checks. Employees found the practice of the operations manager’s endorsement, cashing checks, and delivering their money to them a convenient way to receive their pay.

There was some evidence that certain checks were issued that exceeded the amounts employees normally earned, that is the hours they actually worked did not justify the amount of the check.

People appeared on the payroll while the manager was employed by the maintenance company who never appeared on the payroll after he was terminated and were apparently fictitious.

The maintenance company’s vice president identified persons for whom there were no applications for employment on file or who never worked for the company and were also apparently fictitious. The vice president further identified individuals who got paid by the company when they worked at various locations while these were shadow janitorial service accounts.

Checks were identified that were deposited into the manager’s own bank account that were funds to which he was not entitled or were made out to presumed fictitious employees.

No Follow Up

The maintenance company knew that payroll checks were being cashed at the check casher because when they were cashed and bounced and the check casher contacted the company to make good for the sums paid to employees plus expenses incurred, it sent the amounts requested to the check casher.

The maintenance company never requested that the check casher send it the bounced checks. Had this been done, noted the arbitrator, the alleged forgeries could have been discovered.

In his initial decision, the arbitrator created three categories of additional potential damages resulting specifically from the improper check cashing practices. He directed that the maintenance company resubmit some specified proofs reorganized in line with these categories.

The arbitrator also stated the check casher might be entitled to a credit on its counterclaim, conditioned upon the maintenance company being unable to “prove that one or more of the 27 checks that was subject to a stop payment order fell into one of the three categories…”

After reviewing the submissions, the arbitrator ultimately granted the maintenance company $9,190.50 of additional damages in a supplemental decision.

The check casher appealed the arbitrator’s decision to the Appellate Division of the Superior Court of New Jersey.