The U.S. banking system has made some dramatic improvements in its collective health since the 2008-09 financial crises. For the most part, banks are well capitalized. The latest Federal Reserve Board stress tests show that 15 out of 19 of the nation’s largest financial institutions can safely weather a severe downturn in the economy. A severe downturn is defined as one with a 13 percent unemployment rate, a 50 percent drop in the Dow Jones Industrial Average, and a 21 percent decline in housing prices. While we do not see anything like that on the horizon, it is good to know that our banking system can largely weather any storm that may develop in the European financial markets.
Commercial & Industrial Credit for the last 12 months is 5.7 percent above this time last year and climbing. The last quarter came in 10.3 percent ahead of the year earlier. Readers who are in need of a bank loan should find a slightly more favorable lending environment in the second half of the year. It would be a good idea to secure a loan in 2012 before the economy begins to show signs of weakness in the latter half of 2013.
Nondefense Capital Goods New Orders serves as a gauge of economic activity. The New Orders trend has been rising for two consecutive years and ITR is expecting the demand for capital goods to increase through 2013. The seasonal rise in the early months of 2012 is weaker than normal. The mildness is consistent with our forecast of a slowing rate of rise in the New Orders trend as we move through the rest of 2012.
Retail Sales in February produced amazing results. Retail activity, including automobiles and gasoline, posted an incredible 4.6 percent jump from January to February, making this the second best February increase in 65 years. Things look great at ground level too. Retail sales without autos and gas and adjusted for inflation posted a 1.7 percent rise. The average of the last 10 years has been a 2.0 percent decline.
Metalworking Machinery New Orders for the 12 months ending in January totaled $25.4 billion, 11.8 percent above the same time last year. Our forecast calls for New Orders to rise through 2013. The increase in New Orders has created a demand for machinists, tool and die makers, and computer-controlled machine programmers and operators. Despite adding 212,000 jobs in 2011, manufacturers still face 600,000 job vacancies. Many businesses are turning to foreign workers to help fill the gap.
North America Light Vehicle Production for the 12 months ending in January is 10.4 percent above the same time last year. ITR is projecting that production will increase through the first half of 2013.
Make your move
First, realize that the economy is stronger than you or your team may think. Step away from the daily stock market reports and political posturing. Key leading indicators, such as the Conference Board’s U.S. Leading Indicator, are pointing toward more economic expansion in the second half of the year. Get aggressive in your plans to capture market share.
Secondly, prepare for wage inflation. This seems counter intuitive with unemployment at 8.3 percent, but look instead at the high number of job openings while the unemployment rate remains high. This suggests tight labor market conditions. Readers should plan on spending money on training, investments in laborsaving capital, and on increased compensation for your best team members. The latter can be accomplished through bonus and other incentive programs, as opposed to baseline pay increases.
Alan Beaulieu, [email protected], is president of the Institute for Trends Research (ITR). The ITR blog can be found at www.itreconomics.com/blog.
