2013 Economic Outlook: Housing and Exports Strong; Confidence So-So
Originally published: 12.01.12 by John Augustine
What are the economic indicators that U.S. business leaders should be watching closely?
There are six. Three indicators are doing reasonably well, and three are still very soft. As a result we have this muddled economic environment. Of the three that are relatively strong, number one is housing, specifically building permits (Figure 1). Number two is vehicle sales, the annualized rate, which is over 14 million, according to the U.S. Dept. of Commerce. And the third is U.S. exports, which continue to stay above $180 billion per month, even though we expected it to slow down by now (Figure 2).
Of the three that are lagging, number one is employment, the weekly unemployment claims and jobless numbers. Number two is confidence. There are two different indicators that we watch. One is business confidence, the National Federation of Independent Businesses optimism survey (Figure 3). The second is consumer confidence as measured by the U.S. government (Figure 4). Those are both moving sideways at much lower levels than before the recession. The third is investment, which we pick up through the quarterly GDP numbers. (Real non-residential fixed investment decreased 1.3% in the third quarter; equipment and software decreased less than 1.0%. Both had been increasing.)
In this economic environment, where money is piling up on the sidelines, the question is what’s going to bring about the confidence to start to release it into investment, which leads to employment.
What’s the potential economic impact of the presidential election?
The election is not going to bring the finality that Americans want. This is a process. This election is the third or fourth inning of a nine-inning process for Americans to get the Congress that they want. That will take two or three more two-year election cycles.
Perceptions about the results of the election will affect business and markets. The perception is that Republicans would have been more friendly toward wealth, business and markets. And the Democrats, in general, will not. Right or wrong, that perception will affect the economy and markets at least through next spring.
What’s going on with the U.S. Federal Reserve?
The Fed continues to be frustrated by a lack of fiscal policy, and the reliance of politicians on monetary policy. They see Congress and the White House as doing nothing, which makes the Fed the only pro-growth game in town. They do not want the U.S. economy to flip into a recession. They’re still sitting on approximately $1.5 trillion of excess bank reserves. As long as that condition exists, we can expect the Fed to keep U.S. interest rates ultra low.
What are some of the top priorities that business leaders should focus on in 2013?
Resources are limited at every company, depending on which way revenues and profit margins are going. With limited resources you have to apply it where you’re getting the most growth, primarily revenue growth. As a business owner, you must challenge or consider jettisoning those areas where you’re not getting growth.
You need to reach down into your employment base and harness ideas from across the organization for improving the top line. Businesses generally ask employees how to increase the bottom line. In a world of sub-par GDP growth, it’s the top line that we should be leveraging the entire employee base to try to affect.
Why do you say that companies should consider hiring a healthcare cost consultant?
We don’t know what’s going to happen to healthcare costs. We don’t know what’s going to happen to coverage. Whether you like it or not, we all need to think about engaging a specialist who can keep up with it, and make sure we’re doing the right things. Moving forward it’s likely to get more confusing vs. less confusing. Engaging a specialist could be one of the best bets a business owner makes that allows him or her to sleep comfortably at night over the next three to five years. (See Charlie McCrudden’s column in the July 2012 issue for a report on credits, penalties and other effects of the Affordable Healthcare Act on small and medium-sized businesses.)
What could happen in Europe next year?
No one wants to predict anything about euros right now because no one knows the future. That’s another thing America has going for it: currency stability. As to whether the euro survives three to five years from now, that’s a 50:50 toss up. It’s going to be on all of our minds. Will it impact smaller decisions? No. Can it impact large investment decisions? Yes. If they’re based in euros, those will require contingency planning to adjust to new currencies.
So far European politicians have given every indication that they want to defend the Euroregion, but unless they can get the bond yields back together, and get the banking system settled down, it’s going to be difficult.
Why are jobs coming back to the United States?
Number one, wage rates in Asia are not going down; they’re going up, and they’re going up at a fast clip. At the same time that wages are going up, productivity and quality are going down. That [reverse migration] started several years ago. Another piece of the puzzle is rising logistics costs.
The biggest Achilles heel for America is not having the labor force to meet the manufacturing demand. If you think about America, we have a huge surplus of white-collar labor. And a huge shortage of skilled blue-collar labor. One way to fill that void, which is a divisive issue, is through immigration. Another way is through training, but that takes a couple of years.
Key Business Priorities For 2013
1. Resources – Focus resources on what is currently growing; challenge or jettison those areas that are not.
2. Growth – Brainstorm to identify one new revenue growth area to focus on for the year – and follow through on it.
3. Productivity – Identify one area that needs productivity gains for the year – and follow through on it.
4. Cash balance income – Increase the yield from excess balance-sheet cash through higher-yield investments.
5. Commodity costs – Lock-in prices on products with high commodity content when they hit your strategic planning level.
6. Insurance review – Review key insurance policies and if all other policies are still current and relevant.
7. Acquiring employees – Actively seek partnerships (local community colleges or equivalents) for a steady employment pool.
8. Future growth – Pre-fund growth by purchasing a property and/or facilities to grow into.
9. Transition planning - Have a written transition plan (private company) or succession plan (public company), with the appropriate professional partner input.
10. Hire a healthcare cost consultant – Hire an expert to navigate growing market complexity. ν
John Augustine is the Chief Market Strategist for Fifth Third Bank, which has nearly $25 billion in assets under management. The report appears courtesy of TBM Consulting Group, www.tbmcg.com, which first published it in the October 2012 OpEx Review.
Articles by John Augustine
2013 Economic Outlook: Housing and Exports Strong; Confidence So-So
John Augustine, Chief Investment Strategist for Fifth Third Private Bank, talks about the impact of the presidential elections, Europe’s rocky economy, and persistent domestic unemployment.