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Economic Outlook: Key Findings & Predictions

Posted 04-27-2010 at 08:26 PM by 95th Annual
This morning, Norbert J. Ore, CPSM, C.P.M., chair of the ISM Manufacturing Business Survey Committee; Anthony S. Nieves, C.P.M., CFPM, chair of the ISM Non-Manufacturing Business Survey Committee; and Jason Cummins, partner and head of economic research at Brevan Howard Asset Management, delivered mixed messages in their Economic Outlook Presentation.

“All I can say is, what a different a year makes!” Ore began. “The recovery, as it turns out, is a very sharp ‘V.’”

As evidence, Ore presented some telling findings about the manufacturing sector:

• Operating rate is currently 72.8 percent of normal capacity.

• Production capacity is expected to increase 6.4% in 2010.

• Capital expenditures are expected to increase 2%in 2010.

• Prices paid increased 2.7% through the end of April 2010.

• Prices are expected to increase a total of 3.8% for all of 2010 – a 1.1-percent increase for the remainder of 2010.

• Manufacturing employment is expected to increase 5.2% during the remainder of 2010.

• Manufacturing revenues are expected to increase 6.3% in 2010.

• Overall, manufacturing is expected to grow significantly in 2010.

Next, Nieves offered some mostly positive findings for the non-manufacturing sector:

• Operating capacity is currently 83.6% of normal capacity.

• Production capacity is expected to increase 2.3% in 2010.

• Capital expenditures are expected to increase 1.9% in 2010.

• Prices paid are expected to increase 0.7% through the end of April 2010. Also, prices are expected to increase a total of 1.7% for all of 2010 – a 1% increase for the remainder of the year. “Price changes are still very demand-driven,” Nieves told attendees. “Prices won’t be increased until the economy provides to be more stable in the long-term.”

• Non-manufacturing employment is expected to decrease 0.1% during the balance of 2010. “In 2010, I see manufacturers selectively replacing positions,” Nieves said. “But, sadly, as we all know, it’s easier to lose 1,000 manufacturing jobs than to replace them.”

• Non-manufacturing revenues are expected to increase 0.3% in 2010.

• Overall, non-manufacturing is expected to grow slightly in 2010.

Cummins, on the other hand, had what he called a “pretty dark presentation” to deliver: “Longer-term trends have a darker cast than short-term ones we’re enjoying now.”

His contention was based on four basic points:

1) The recovery will be relatively weak, compared to previous recoveries. As Cummins said, economists predict nominal (4% - 5%) growth, which is weak by historical standards.

2) It’s the end of the great moderation. Cummins contended that slower growth and volatility signify the new normal, or – as he prefers to call it – the new ABnormal.


3) Structural drags must be factored in. These include:

a. Homeowner vacancy rate – “Before the recession, we were building so much that the vacation rate made sense,” he said. “But, it remains high, and we’re five years into the recession.”

b. Household balance sheets – These are still highly leveraged, according to Cummins. As a result, consumers are under a lot of pressure from mortgage companies, credit card issuers and the like.

c. Wealth stagnation – “We’re back to the trough between the dot-com bubble and the housing bubble,” Cummins told attendees.

d. Damaged labor market – Whereas employers used to be able to match a vacancy with a well-matched candidate, now it is difficult for these job-seekers to sell their homes and move elsewhere for new opportunities, he explained. And, obviously, there are fewer vacancies being filled right now.

e. Unfavorable demographics – “The past two years have undone two decades’ worth of demographic growth,” Cummins said.

4) Is there another bubble coming? Yes, according to Cummins – two of them, in fact: government debt and the Fed balance. “The amount of support the government has provided toward the recovery is absolutely unprecedented,” he explained. “Also, the Fed has put all these assets on its balance sheet at the highest prices. The only way that can end is to sell them off for less.”

In the end, Cummins said, the recession might actually be preferable to today’s outlook. “At least then we knew what we had to do: put down a safety net,” he explained. “But, now that that net is in place, it’s unfamiliar territory. We’re feeling out the consequences of what was laid down.”
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Comments

Old
Where may I obtain a copy of the briefing slides from the Economic Outlook presentation? They are not within the proceedings or presentation areas online. Thank you!
Posted 04-30-2010 at 01:11 AM by myliebe
Old

Economic Outlook Presentations

Where may I obtain a copy of the briefing slides from the Economic Outlook presentation of Mr. Nieves, Mr. Ore and Mr. Cummins? They are not within the proceedings or presentation areas online. Kindly send the link or pdf file to [email]pdominguez@smg.sanmiguel.com.ph[/email] or [email]dominguez_perry@yahoo.com[/email]. Thank you!
Posted 05-10-2010 at 03:09 PM by 000000103816
 

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