Economic Outlook

TEC Midwest relies on the economic forecasting of Brian Beaulieu with ITR Economics.  Why?  Because he has been so often right.  On September 25, 2012, he spoke to a group of TEC Chairs, TEC members and others at the annual Baird – TEC Luncheon in Milwaukee.

Here are my notes from that presentation.

Summary

1.   If there is a new market for your company, go for it.
2.    Be very cautious about hiring except to support your new market initiative.
3.    Look at China as a potential market, but seek competent advice before entering.
4.    The election will not impact the 2014 recession – the stage is already set.
5.   Obama will most likely win so “deal with it”.
6.   Your imagination and personal energy are the only things holding you back, not the government or the economy.  

Details

US Economy as a percent of the World’s GDP (~$70 trillion) is still the largest though down to 21.7% from 25% a few years ago.

US employment is on the rise as companies have finished “right sizing”.  However, there is a 6% structural unemployment as a result of people not possessing the right skills to fill open jobs. 

We will have a mild recession in 2014 beginning 4 quarters after mid 2012 regardless of who wins the election.  Our election will not be an economic game changer regardless of who wins

Housing is doing better than Brian's forecast of a year ago.  He expects it will be flat to up slightly during the 2014 recession.  First time buyers are being held back by student loan debt.

Leading indicators are up suggesting 2 to 4 more quarters of growth.

Liquidity is not a real issue with $2 trillion on corporate balance sheets.  The will contribute to a solid recovery in 2015 through 2017.  China is also building liquidity so the 2014 recession should be soft.

Brian sees a substantial downturn after 2017.

QE3 will continue to keep interest rates low and bond prices up – but beware, a bond bubble is being built.

Banks lending is up strongly but only to clients with good credit.

Retail sales are up 25% year over year and the Christmas buying season is expected to be good assuming retailers don’t skimp on inventory.

Deficit spending continues as sequestration of funds merely slows the rate of growth in government – no true cuts.

Bush tax issue will be pushed off until April to let the next Congress deal with it.

Taxes will go up but question remains “on whom?”

Oil in 2013 will reach $120 per barrel if Iran should turn into an open conflict.

Food prices will continue to go up.  Meat prices are currently low as farmers send their life stock to slaughter because of high fed prices.  They will go up once this herd culling is concluded.

Energy and food prices won’t impact Fed policy.

Health care has become a social right regardless of who is elected our next President.  The issue that 80% of a person’s life time health care cost is incurred in the last two years of life will have to be dealt with. 

The deficit as a % of GDP is a “train wreck” coming and will be exacerbated by the growth is health care costs.

The stock market will have a significant downturn in 2014.

The EU will find a way to survive.

Our dependence on foreign oil continues to decline even without a clear energy policy.  And about half of the 45% we now import comes from Canada.

Energy distribution is a growth area – getting energy from its source to population centers.

US productivity continues to improve due to capital investment, which remains cheap due to low interest rates.

Manufacturing as a percent of GDP is now 12.2% up from 11% in 2009 and is expected to continue to grow.

Interest rates will remain low through the 2014 recession.  Then rates will go up and the bond bubble will burst.