The Word of the Day Is "Slog"

The Institute for Trend Research (ITR) is projecting that the rate of recovery in the United States will slow in the quarters ahead, but—and this is important—given all the bad news and opinions flying around, there will not be a double-dip recession, where double dip is defined as the United States slipping back into a general economic recession.

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Certain industries will stall in their recovery trend, and others will be flat, and still others may give up a little ground, but the U.S. economy in total can be expected to slog its way forward. I am thinking of getting a bumper sticker made that says, “It won’t be pretty, but it is sustainable,” just to counter all the gloomy outlooks we’ve been hearing.

Uncertainty abounds, and businesses of all kinds hate uncertainty. The uncertainty seems to be tied, at least in part, to the upcoming mid-term elections, daily stock market gyrations, worrisome economic news, lingering high unemployment, government debt, uncertainty over new financial regulations and whispers about the shadow housing inventory. We are not complacent about these problems, but we have to balance off the negatives with the positives.

The leading indicators portend ongoing economic expansions, albeit at a tepid pace. The Corporate Bond Prices 12/12 (annualized) rate-of-change recently took a turn to the positive. Consumer spending is above year-ago levels. Americans are saving a tremendous amount of cash (future consumption). Many businesses have fortress balance sheets (also future consumption). Corporate profitability is dramatically higher. This last point is worth a second look, as it means corporate America has right-sized to the new reality.

One more point of optimism can be found in the Federal Reserve Board’s remarks that they will provide the needed liquidity to keep the economy on a positive footing, if necessary. An infusion of cash by the Fed will help banks and businesses in the coming quarters if the dark days return.

The outlook has not changed, and it is rather straightforward. The U.S. Industrial Production trend, as measured by the three-month moving average, will be essentially flat in the last quarter of 2010 and in the first quarter of 2011. Knowing that this is coming will keep you from being drawn to the false conclusion that another recession is about to begin. It is merely a sag in the road, not the beginning of a downhill slide.

Industry news

Nondefense Capital Goods New Orders are tracking 3.4 percent above year-ago levels. Further rise is projected over the next two years, albeit at a slower pace in 2011. There are signs that companies will rein in investment, which will likely translate to slower year-over-year growth by the first quarter of 2011.

The rate of recovery in Metalworking Machinery New Orders is normal. New Orders for the past three months are 19.5 percent ahead of this time last year, but the year-over-year comparison in the quarterly figures will start becoming less favorable as we end 2010 and enter 2011. The good news coming from the manufacturing sector in general has improved the outlook for Metalworking Machinery.

Industrial Machinery New Orders are improving at a rapid pace on a year-over-year percentage basis. Orders have risen an astounding 41.1 percent from the late 2009 low (12-month moving total basis) as recovering businesses take advantage of prices, the low cost of financing and the need to drive ever more efficiencies into their operations.

The upcoming period of stability/mild recovery in the U.S. economy demands increased efficiency throughout your operation. Spend money now on employee training and reap the profits from improved productivity and increased customer satisfaction. Hire to fill skill gaps or to avoid employee burnout.

Alan Beaulieu, alan@itreconomics.com, is President of the Institute for Trend Research in Boscawen, N.H. His book, “Make Your Move,” is available at www.itreconomics.com. His Internet radio show is live from 1 p.m. to 2 p.m. Pacific time on Mondays at www.voiceamerica.com.

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