Sustainable Recovery

Aug. 1, 2010
The U.S. and global recovery is sustainable.
That has been our outlook and that remains our outlook going forward, despite the increasing clamor of the double-dip alarmists. Yes, there are real dangers out there that threaten our well being, but we have taken them into consideration when putting together our forecast. The leading indicators, extant economic activity, consumer trends, the nascent improvement in state tax revenue and our cyclical theories are consistent in that the mild recovery in North America is sustainable.However, it is expected that the rate of recovery in the United States will be milder than most of us would like and milder than we had anticipated 15 months ago. The revised forecast calls for a slower rate of growth in the U.S. economy in 2011 followed by an increased level of activity in 2012. We are still forecasting three years of recovery (unchanged from our previous discussions), but we have increased the anticipated rate of rise for 2010 and lowered the rate of rise for 2011. This change is consistent with what you have been hearing us say at meetings around the United States over the last three months, and it is consistent with the rebased and revised data released by the Federal Reserve in June.It became obvious as the G20 meeting in Canada wore on that most of the world will not follow the United States as the President and Congress pursue a policy of economic stimulation through deficit spending. Canada, Germany and others will move to austerity in order to reduce their budget deficits and reduce their national debts. Over time, the U.S. national debt will continue to explode while other nations reduce their debt. The result will be that the United States will pay huge amounts of interest each year, which will require higher taxes and simultaneously make less federal money available for defense, entitlements, other essential programs and future stimulus spending when the next recession comes.Not bad, all things consideredHousing Starts are an important indicator of general economic activity and thus important to industries far removed from the housing sector. There was a lot of ink used to describe the troubles in May following the expiration of tax incentives for homebuyers. Housing Starts declined 6.3 percent from the previous month, and the change from the year earlier level (1/12 rate-of-change) dropped to a two-month low. It certainly sounds bad. However, there are two things we would like to point out. First, the annualized growth rate (12/12 rate-of-change) and the 12-month moving total (12MMT) data trend remain in strong rising trends (regular readers of Institute for Trend Research know the importance we attach to these trends—detailed explanations are available at Second, we expect the rates-of-change will soon move from rise to decline. This change in direction should not be taken as a precursor to a double-dip recession, but rather that we are on track with our outlook of a softer rate of growth in the U.S. economy in 2011.Durable Goods New Orders is providing good news for general economic recovery. Personal Consumption Expenditures of Major Household Appliances for the past three months is up an impressive 15.5 percent above the same time last year. This is the best year-over-year gain in more than 26 years. The recovery in Metalworking Machinery New Orders is in full swing. Information Technology New Orders is up a strong 4.2 percent from the late-2009 low.Now is the time to begin phasing out the marginal opportunities that were held onto during the recession.  Focus on the areas that are going to perform the best as the economy progresses into better times.Alan Beaulieu, [email protected], is President of the Institute for Trend Research (, in Boscawen, N.H.

Subscribe to Automation World's RSS Feeds for Columns & Departments