Monday, August 03, 2009

Economists debate outlook, what do we know

From this perspective there are now three views on the economic outlook among economists who are "highly regarded".

Door Number one looks for a long slog for the economy, an unemployment rate that will stay stubbornly high once the generally agreed upon 10% area is reached, a multi-year problem with overcapacity in many areas but in particular those that service the retail markets with everything from cars to appliances to clothing, and a housing market that can stabilize at best in certain geographic areas and demographic markets, with downside still in others. This all means sustained low growth and government deficit issues.

Door Number two sees traditional signs of a recovery, not an easy or quick one from such a deep decline, but a real one nevertheless, validated by all of their historical models. With the yield curve winds behind their backs and banks backing off of risky practices they see a banking system that will be significantly strengthened over the next year. With the beginnings of hope in the investment of stimulus money, they see overlooked but still vital businesses in the materials, construction, engineering, and equipment areas. They see a new element not included in past equations, which is the importance of China, Brazil, India, and other emerging markets to propel growth in their parts of the world that could reverberate to the global economy in a positive way. They are cautiously optimistic.

Door Number three finds the big attention getters, some seekers, of the past couple of years, those who rode the economic debacle to glory through intuitive prescience, rigorous research, or blind luck. Having made their mark most are hedging their bets now, seeing some positive signs along with the negative, and carefully refusing to "go long" with any real view.

As it always has been, there are many points of view but, given what we've been through, searching for answers is more crucial than usual. What's going to happen is...

---Unemployment will increase to 10% or 11% over the next year and very slowly decline to the 7% to 8% area by 2012.
---Most retail businesses will continue to consolidate, retrench, or worse, while the few with a long term competitive advantage and a strong capital base will continue to grow and the bottom feeders, dollar stores, will continue to thrive.
---The auto companies have already formed a bottom for sales and will slowly revive through these great difficulties as replacement vehicles are needed and the Ford and especially GM international businesses aren't half bad. That said, Chrysler might slowly go down, with a couple of brands like Jeep and Dodge trucks sold off to foreign or private equity buyers, in fact that's likely.
---Price pressures will stay moderated and deflationary fears will be tested over the next year. Once a real global recovery is in place two to three years out inflation is almost inescapable as input costs like commodities and foreign labor will grow despite what American consumers are willing to pay and as the government deficits almost inevitably lead to an even weaker dollar. This will be generally good news for growth industries and people with jobs. This will be devastating news for people on fixed incomes or without jobs.
---Equity markets will be volatile but will over time advance and economic prosperity will in the aggregate be restored. What will fundamentally be different is the composition of the so-called "new normal". There will be a still highly prosperous top 2% of the country that the media will focus on, an upper middle class in decline, and a bulge in the just hanging on to middle class group, a bulge that is even bigger than the one today. What this is saying is that aggregate U.S. economic growth and prosperity will be there and reflected in equities, but a granular prosperity will be delinked from the financial markets.
---All of this is intuitive postulation or informed blather. What it does not include is any assumption of a new wave of innovation. Will there be some new disruptive and energizing technology that will make all of these attempts at reading the future meaningless. Has the destablization of the credit system, the new xenophobia, and now the open Obama antagonism for corporate America derailed the R&D process of investment in the U.S. Will some breakthrough come from France, South Korea, or India, or any other educated country that still looks to the future. Is Google already the end game, ready to pounce once the dust clears. Will the U.S. be the source of new innovation.
---Will the political world as we know it hold together.

Anyone who has managed to plow through all of this speculation can apply for a free limited edition Eyes Not Sold t-shirt, that's as soon as they are imagined and produced.


Anonymous kf said...

Sign me up.

10:45 AM  

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