2010 Economic Predictions from the Experts

It’s that time of year when business organizations hold luncheons and ask noted economists to make some predictions for the upcoming year.  I have attended no less than three of these gatherings the past week or two!  My main take-away (besides eating too much chicken and really rich desserts) is that predicting the future is tricky business.  As the noted economist John Kenneth Galbraith  once said,

“There are two classes of people who tell what is going to happen in the future: Those who don’t know, and those who don’t know they don’t know”.  

In all fairness, there was a tremendous amount of great information put forth, and it is important as business owners and managers to understand the current and future economic landscape.  Many businesses are staring at 2010 and wondering if they should start new projects, begin hiring, and/or invest in the business once again.  Those decisions are easier if you believe the economy is recovering vs. staying stagnant for another year.  

Here is a summary of the things I heard about 2010:

• The forecasts forReal GDP  % change were all around + 3.5%.  This compares to 2009′s expected decrease of almost -2.0%.
• There was also similar consensus across the economists I heard on the 2010 consumer price index . An increase of between 1.5% and 1.9% - no one at 2.0% or above.  Remember, 2009 is hovering around 0%.
• Despite all the rhetoric right now, none of these speakers was concerned about inflation for the next 12 months.  In fact, only one thought there was a strong chance of inflation becoming an issue any time in the foreseeable future.
• Most seemed to think unemployment has peaked and will begin to s-l-o-w-l-y come down during 2010.  Interestingly enough, on Friday, the rate unexpectedly fell to 10 per cent  (from 10.2 per cent in October), as employers cut the fewest number of jobs since the recession began.  The predictions for year-end 2010 unemployment ranged between 8.5% and 9.5%.

A few other predictions/observations from the three groups:

• Everyone pointed out that only 30% of the stimulus money has been ”spent”, with the bulk of it to come in 2010. 
• The capital markets are still fragile – witness the recent Dubai “crisis” - and they will remain that way through 2010.
• Residential real estate prices may be close to a bottom, but continued high unemployment will keep them from increasing for at least a few years.  Commercial real estate will have a terrible 2010, and it’s impact will be felt by regional and community banks.
• The dollar will continue to be weak because of the US govt. deficit spending, but no one I heard in the three meetings felt there was a real possibility of it losing status as the global currency standard any time in the 5 years. 

The question, of course, is what this means to your business.  My view: 2010 will be a much better year than 2009, and is the start of a slow, but steady ascent back to some kind of normalcy.  Companies with strong balance sheets will get stronger as their competitors wilt.  Opportunities for growth exist, but capital will continue to be hard to come by except for solid stories backed by strong and committed management teams.  Hiring will continue to be anemic, especially in the first half of the year.  This continues to be the right time to use hired guns and temporary resources. In summary, it’s time to be opportunistic, but not yet the time to throw caution to the wind. 

What are your economic predictions for 2010?