The Year Ahead

Feb. 13, 2007
Use 2007 to develop a plan for a lower level of activity during 2008.
Overall, look for the U.S. economy, as measured by U.S. Industrial Production, to continue to grow through 2007, but at a slower pace. 2006 ended with a growth rate of 4.1 percent; we are projecting a 2.8 percent growth rate for 2007. We think business-to-business activity will be the propellant for the economy over the next four to six quarters, which is great news for readers. Nonresidential construction will have a strong year in most markets. The service sector is likely to grow as well.

Consumer spending will likely be OK in the aggregate, but some sectors will fare appreciably better than others.
Readers in the housing market and related industries should prepare for a difficult year ahead and ignore the optimism in the first part of this column. Participants serving industries that serve the housing industry will be down for 2007, as Americans are likely to invest in stocks and spend money on cars and other toys instead. 

On a personal investment note, the stock market looks good for a rise through mid 2007, perhaps even through the third quarter. Look for works of art (paintings, sculptures  and the like) as an investment to experience a better year ahead.  Jewelry under the guise of investment and a form of art should also have a good year in 2007. 

Get ready

Use 2007 to develop a plan for a lower level of activity during 2008, with more troubles likely in 2009 in traditional, mature markets. Begin missionary efforts into new markets; this is where a lot of your time, money and energy should be focused in preparation to mitigate the effects of the projected troubles in 2009. Be careful about expansion plans and overbuilding in core businesses; keep costs as flexible as possible. 2007 and 2008 will also be a prime time to sell the business because the period will constitute the top of the business cycle. Take advantage of emotional efforts in others at denying the potentiality of a 2009 recession.

The underlying trend for Industrial Machinery New Orders (NAICS 3332) is positive, with a decelerating rise anticipated for 2007, especially in the second half of the year. The annualized New Orders figure of $36.87 billion is the highest in just over five years, and there are no internal or external signs that the rising trend will end any time soon. The input we get from the rates-of-change and from external leading indicators (including our EcoTrends Leading Indicator) is that the rate of growth will slow in the coming year, from today’s growth rate of 23.3 percent to about 18.2 percent in 2007. Budget for prosperity and be sure to have sufficient people and inventory to meet the demand. Use variable costs, if possible, given that the strong rate of rise is not expected to carry over into 2008.

The business cycle trend for Metalworking Machinery New Orders (NAICS 3335) is positive. The rates-of-change are holding up well, and the New Orders data trend is on track for more record highs through at least the next several quarters. Expect near-term seasonal decline but no real business cycle-related problems. New Orders are 13.3 percent higher than at this time last year on a 12-month moving total basis. Expect the growth rate to slow to 5.3 percent for 2007.

Slower growth is the outlook for Electrical Equipment New Orders (NAICS 3353). The annualized New Orders figure is 15.9 percent higher than at this time last year, but the growth rate is expected to slow to 3.6 percent by year end 2007. A slower rate of growth in 2007 is consistent with internal rate-of-change indicators and with extant leading indicators such as the U.S. Leading Indicator and the Purchasing Managers Index. Readers are urged to be aggressive with sales, but expect competition and pricing margins to be tighter.     

Alan Beaulieu,  is Senior Analyst, an economist and a Principal with the Institute for Trend Research, in Concord, N.H.

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