The U.S. economy will continues to have stubborn anemic growth despite a stronger first quarter above 3%. Many economic indicators are positive and the private sector seems to be shrugging off the dysfunctional congressional politics.
What’s Next? Strong Global & Domestic Headwinds Keep Blowing
Look for the rest of 2013 growth to be slow hovering between 1-2% until the 4th quarter which could tick up to 2.8 or 3%.
- Sequester Clips Growth
- European Union Debt Crisis Drags on
- Mixed Reports for Manufacturing and Housing Starts
- Flat Wages and Unemployment Persist in the U.S.
As the impact of sequestration impacts the economy it will shave off about 1.8% GDP in 2013. Government spending cuts of $85 Billion will begin to hurt in terms of more job losses and decreased consumer spending. The key offset is the FED monetary policy which will likely to continue for another year and into 2014.
Europe will likely contract by 0.3% in 2013 with slow growth only Germany, Belgium, France and the Netherlands. The Southern economies will stagnate. Italy’s GDP fell below California’s GDP in 2012 for the first time in recent history. High unemployment persists. Recovery, when it comes, will be very slow for the foreseeable future.
Manufacturing indices have been weaker than expected and multi-family housing starts, touted to be the engine of the housing recovery, are coming in lower than expected.
Unemployment will likely fall to 7.5% in 2013. Persistent underemployment remains a plague. Further decline in the unemployment rate can only be fueled by much higher economic growth. Private sector job growth is consistent with 2% GDP. Unfortunately there is no silver bullet. Of further concern is the continuing widening income gap.
Low Probability, High Impact Events. Less than 2%
- True bi-partisanship returns to government.
- North Korea fires off a nuclear warhead at South Korea.
- China stumbles instead of muddling ahead; growth falls below 6%
- Pandemic of a synthetic virus flu drives global growth below 2%
Reasons for Optimism Remain
Despite the headwinds there are several persistent optimistic signs.
- Private Sector Kicks into Gear U.S.
- Chinese Economy Picks Back Up
- Exports remain at record highs
- Inflation is abating around the world
- Housing is gradually coming back
- Consumer Spending is up
Business seems to view Washington as a distraction and is investing and hiring more although still not as robust as needed. Business still sits on lots of cash, holding onto over $2 trillion. If the level of uncertainty doesn’t increase again and the global economy continues to grow look to business to gain more confidence and slowly ramp up.
GDP is likely to come in about 8.2% at the end of 2013 buoyed by increased consumer spending and government stimulus. China remains a strong market for U.S. exports exceeding $110B in 2012 and poised to exceed that in 2013. It is #3 behind Canada and Mexico. There is an increase in higher value exports as well.
2012 was another record breaking year for U.S. exports coming in over $2.2 Trillion. 2013 should be another banner year. Canada, China and Mexico remain our top trading partners and export destinations.
Commodity prices have leveled off in the emerging economies. Excess labor and productive capacity in the developed markets keep inflation down.
The long awaited housing market return is here. Housing deleveraging is basically over. Led my multi-family construction new housing starts should reach just under 1 million in 2013 contributing about ¾% to GDP. The strength is underpinned by low mortgage rates, rising home prices, some employment growth and better household formation.
Credit card, auto loans and other consumer debt has fallen significantly. Deleveraging at the total expense of spending has slowed. Even with the return of the payroll tax consumers continue to spend especially the top 20% income earners who account for nearly 50% of consumption.
Thriving in an Anemic Economy for ‘Yes’ Another Year
GDP in 2013 will be steadily slow but is poised to regain steady growth between 2014 and 2019. Be aggressive and prepare for these better times while managing the risks. We are coming to the end of the Badlands. Review and act on the recommended actions at the end of Mary’s forecast in November 2012. In addition do some long term planning.
Where do you want to be in 2020? Refresh your vision based on some solid growth through 2019 taking into account the shifts and dynamics.
Focus on micro trends for new consumer segmentation while traditional approaches fly out the window. Consumers are forming new small affinity groups around products and services leveraging social media that spawn a plethora of micro trends.
A refreshed vision and set of at least tuned up strategic initiatives necessitates a review of how you are spending resources. As you deepen your understanding of your customer you will want to decide what resource allocations you can eliminate, which ones you can diminish, which ones you should increase and what new investments you should make to assure sufficient innovation.
The Supreme Court trumps the lobbyists. It’s implementation no longer in doubt begins in earnest in 2014. This creates an important strategic issue for every CEO who should participate in understand the law and direct the choices the company makes around health insurance. Leverage the new opportunities to provide coverage and mitigate the risks to your bottom line.