Forecast for Next Year? Better But Unsatisfying

By Tim Triplett, Editor-in-Chief
The current economy reminds me of a walk in downtown San Francisco. Every time you round the corner, there’s another enormous hill to climb. While the experts say we’ve turned the corner on the recession, the climb back to prosperity appears daunting—but there is a cable car in sight.

Economists and analysts gathered at MSCI’s forecast summit last month in Chicago all seemed to share a similar view of the future. If we are to believe them, we are in for a better, but still very unsatisfying, 2010.

GDP probably has already turned positive, they say, which technically means the recession is over, though it certainly doesn’t feel that way. Consumer spending is unlikely to rebound and pull us out of the doldrums as quickly as in past recessions. People are really scared this time. Virtually everyone suffered a big loss of personal wealth when the market plunged. Real estate values are down 30 percent or more in many areas. Americans can no longer rely on the equity in their homes as a source of spending money. Troubled banks are still reluctant to lend. Consumers are cutting back, spending less and saving more. This “paradox of thrift” promises to deprive the economy of fuel it needs to grow.

Who among us doesn’t have a friend or loved one who is out of work? Employers won’t create new jobs until they regain confidence in the economy. Unemployment is expected to top 10 percent in the next few months and will continue to restrain growth until at least 2011, most experts agree.

Cash for Clunkers appears to have had only a temporary effect, as U.S. car sales dropped again in September. Auto industry analysts expect production of just eight to nine million vehicles this year, and nine to 10 million next year—a far cry from the 17 million earlier in the decade.

But there are positives in the prognostications. Energy prices are at reasonable levels. Inflation is in check. The weak dollar has boosted U.S. exports. Residential construction is showing signs of improvement. Housing starts, now running at an annualized rate of just 500,000, are actually below what the population requires. Some analysts estimate 750,000 to 800,000 new homes will be built in 2010 and 800,000 to 1 million in 2011. Following them will be new commercial construction and infrastructure.

And here comes that trolley: Government stimulus programs are definitely having the desired effect. But they will take time, economists warn, so be patient. We will see more of the benefit from the $787 billion federal stimulus in 2011-2012 and beyond than in 2009-2010. Let’s hope they’re right. In the meantime, hold on tight.




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Friday, December 2, 2016