Twist and Turns on Economic Path

Expert economist makes bold business cycle predictions at EDCO event

In a keynote address to the EDCO 2013 Annual Luncheon, trend-watching expert Alan Beaulieu predicted a period of upcoming economic vitality before a major bump in the road by the end of the decade and even more significant storm clouds on the longer-term horizon unless the U.S. takes painful steps to address a looming unsustainable deficit crisis – but opportunities would also abound for those prepared for anticipated fluctuations.

One of the country’s most informed economists, Beaulieu is president of ITR Economics, which has garnered a reputation for consistently accurate forecasting results. In his EDCO talk entitled: Business Cycles: Fact, Fallacy and Fantasy he pointed to signposts on the road to both recovery and ruin.

For the short term, he portrayed 2013 as a good year with a solid though slowing rate of growth, and foresaw a mild consumer-led recession in 2014 before a strong, vibrant era in the following four years, forestalling a “significant” downturn in 2019.

In that light, he speculated that 2018 could prove an opportune time to liquidate holdings, but thereafter with inflation an increasing factor and the national debt situation spinning out of control the country could slide into another “Great Depression” by the 2030’s, though that could also represent an opportunity for those with little debt, strong cash positions and diversified income streams. Baby Boomers were now retiring at the rate of 10,000 a day, and cost pressures including in the medical sphere are set to be an ever greater drag on the national economy.

Beaulieu said: “We have been in a recovery/growth mode in the US for several years but over forty per cent of the population still thinks we are in a recession.

“Unemployment is going to remain high, but at the same time we are undergoing economic growth, and actually on a local level that can be accentuated as expanded higher education and wider air service such as that sought by Central Oregon are two of the most powerful things that can happen to stimulate economic development in a region.”

In terms of recovery, Beaulieu showed many leading indicators pointing upwards, while liquidity was no longer an issue, especially after widespread deleveraging and the lowering of debt to income ratios in many households. Exports are up and in the background of a continuing stimulative government monetary policy, employment was rising, banks are lending and both retail sales and construction spending are improving.

He advised borrowing “as much as possible” through 2014 – to invest in a number of areas including bolstering business or efficiency of operations – while interest rates are held artificially low, as thereafter we would likely see a rise in the order of 400 basis points (four percentage points) starting with a small ramping up in 2015. If borrowing on a fixed term, he speculated that pinning maturity to 2019 could be a wise move, as that could represent the next best interest rate trough before rising pressures re-emerged.

Post-2014, inflation was set to become an increasing factor and as far as what to do prior to such a period, he suggested “look at the textbooks of the 1970s.”

On a positive note, he said the U.S. was heading towards oil energy independence – with untapped reserves such as found in California’s Monterey Basin, which represents more than the entire reserves of Saudi Arabia – and on the path to a resurgence of manufacturing excellence through being more globally competitive.

On the flip side, remaining areas of concern included Europe’s financial troubles, a possible recession in China, massive legislative changes (including via the Dodd-Frank implementations hamstringing the financial services sector), potentially increasing oil prices, another “fiscal cliff” stand-off, possible tax hikes and the continuing massive deficit and growing national debt.

Beaulieu said the U.S. had no basis to criticize European countries like Greece for their tribulations in addressing austerity measures needing to be implemented to address ballooning national deficits.

Germany was “doing the yeoman’s work” in shoring up the “roller-coaster” of Western Europe through the EU and the Euro would likely be stronger than the dollar once budgets were balanced throughout the continent with leading indicators already on the rise. Cutbacks were likely to see balanced national budgets for both Europe and Canada by the end of this decade – a position at current progress not likely to be seen in the US until the year 2060(!).

Beaulieu said spending on healthcare by those over the age of 55 in the U.S. was significantly disproportionately higher than the rest of the world, and the fact that for the first time this segment of the population was higher than those aged 18 represented an ongoing drag on the nation’s economic growth prospects. This effect could be somewhat counteracted by measures such as raising retirement ages, means-testing benefits and introducing participatory or “concierge” medical systems.

If deep spending cuts were not contemplated, the U.S. deficit as a percentage of the Gross Domestic Product was a major crisis waiting in the future; especially with anticipated rising interest rates signaling the country would no longer be able to borrow at 1.8 per cent rates for the next ten years. China also owned some twenty per cent of such debt, leaving “our left flank exposed”.

Beaulieu said non-residential construction looked promising for 2013-2014, while housing starts and permit activity were likely peaking before leveling off next year. On a local level, he said Bend was witnessing great rates of change in this area and was “on a nice run”.

The “must watch” items list to monitor upcoming trends included:

– ITR Leading Indicator;

– Chicago Fed National Activity Index;

– US Leading Indicator;

– Purchasing Managers Index;

– Retail Sales;

– Employment;

– Nondefense Capital Goods New Orders.

Also, Beaulieu suggested prudent Phase Management Objectives in preparing for 2013-14 as:

– Positive leadership modeling (culture turns to behavior);

– Invest in customer market research (know what they value);

– Instituting training programs (people, process, internal metrics);

– Review and uncover competitive advantages;

– Spend dollars on new products, marketing, and advertising;

– Improve efficiencies with investment in technology and software;

– Check systems for readiness to accommodate increased activity;

– Add sales staff and hire top people;

– Lock in costs;

– Judiciously examine credit;

– Work on “what’s next”.

In conclusion, he remarked that people in power were always reactive and – in a reference especially relevant given the independent pioneering and entrepreneurial spirit of Central Oregon – quoted French social commentator and political thinker Charles de Montesquieu who lived during the Age of Enlightenment and said: “It is always the adventurers who do great things, not the sovereigns of great empires.”

Acknowledged as one of the country’s most informed economists, Alan Beaulieu is a principal of the ITR Economics where he serves as President. Since 1990, he has been consulting with companies throughout the US, Europe, and Asia on how to forecast, plan, and increase their profits based on business cycle trend analysis. He is also the Senior Economic Advisor to NAW, Contributing Editor for Industry Week, and the Chief Economist for HARDI.

Beaulieu is co-author, along with his brother Brian, of the book Make Your Move and has written numerous articles on economic analysis. He makes up to 150 appearances each year, and his keynotes and seminars have helped thousands of business owners and executives capitalize on emerging trends. For more information, see website: www.itreconomics.com