U.S. Economy Trending Upward Into 2013

You no doubt faced many decisions over the last year regarding how to spend your cash in order to maximize the economic potential in front of you.

Aw 8309 Economyview

It was definitely a year of uncertainty.  The media seemed to be continually running stories of a potential “double-dip” recession—a trend that never materialized. The world stared down Europe (for now), natural disasters, the Arab Spring and political disruption in the Middle East. But Automation World readers who follow this column and the Institute for Trends Research (ITR) regularly knew that the recovery was sustainable despite all the turmoil.

Our understanding of business cycles (forecasts) and analysis of leading indicators showed the way to prosperity in 2011. Many readers had an excellent year as they capitalized on the outlook and were prepared to deliver the goods when their customers needed them.

It is always good to ask a forecaster how well the forecasts have worked out over the last year. Glad you asked!  The accompanying table presents actual results to key forecasts. These same tools—our unique cyclical theories, our analysis of leading indicators and our understanding of extant circumstances—lead us to forecast more recovery in the United States in 2012. We think it will take the following form:

  • GDP and U.S. Industrial Production rise throughout the year.
  • Employment rises throughout the year. Unemployment gradually declines but remains a problem.
  • Business-to-business activity remains strong throughout the year, albeit at a slower rate of rise than we enjoyed in 2011.
  • Skilled labor remains in short supply despite high unemployment.
  • Commodity and labor prices reflect rise, reflecting inflationary pressures.
  • Stock market rises.
  • Housing and nonresidential construction post a modest recovery.
  • Banks lend more money than in 2011.

Overall, it would be wise to plan on being busier in the second half of the year than you are in the first half. Look for any buying, production or delivery bottlenecks now and spend money to clear up the problem. The good news is expected to last into 2013.

Long-time friends of ITR know that we don’t often prognosticate with specificity on the stock market. Mostly because it’s a great way to be wrong, and we hate to be wrong! However, we’ll go out on that economic limb with you as we start the year, in part because of several inquiries into the statement, “The market always goes up on a presidential election year.” Our analysis shows that there is an 82.4 percent probability that the S&P 500 will move up in 2012 by 6.5 percent to 13.6 percent. The median estimated increase is 9.0 percent.  

The election year improvement is noticeable and suggestive that now is a good time to think about moving some cash into equities (which particular equity/fund/vehicle is beyond this discussion). Please note that our expectations for the S&P 500 in 2012 have nothing to do with which party wins the election; it seems to be the election process itself that is good for the economy.

Make your move
It is true: Cash is king.  Firms without cash are going to have to be exceptionally creative in growing market share or in keeping up with increased production and delivery schedules.  Firms with cash should consider implementing the following Make Your Move initiatives: 

  • Invest in efficiency gains, whether they are training programs or capital items
  • Hire talented, skilled individuals
  • Increase the sales/marketing effort
  • Develop competitive advantages
  • Revamp customer satisfaction efforts
  • Eliminate bottlenecks
  • Introduce new items to the product lineup
  • Expand into a weak competitor’s backyard

Automation World caught up with Beaulieu at the Robotics Industry Forum and got his forecasts for European recovery and his recommended action items for 2012. View the video at bit.ly/awvid067

Alan Beaulieu, alan@itreconomics.com, is president of the Institute for Trends Research (ITR). The ITR blog can be found at www.itreconomics.com/blog.

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