ECONOMISTS are not known for being happy-go-lucky types. Their glass-half-empty approach dates back to the 19th century, when Victorian historian Thomas Carlyle gave economics the nickname of The Dismal Science.
And yet, Fabricators & Manufacturers Association International staff economist Chris Kuehl says the projections for 2013 by most economists are more optimistic that one might expect.
“For the most part, the expectation is that next year will be quite a bit better than this one,” Kuehl said in his economic-assessment presentation at Fabtech. “By the end of next year, growth will be in the 2.5% to 3.5% range.”
The encouraging signs:
• The average age of the American car is 10.9 years
“People have a reason to start replacing them, and it's relatively easy to get a car loan. Banks have been robbed of traditional business. They're not doing as much mortgage work as they used to. They don't really want to take on anything particularly risky, so they have way-opened-up car loans.”
• A fundamental shift in global economic relations
“There is a global shift in oil. The US is on track to be the world's largest oil producer, replacing the Saudis and Russians. It's been a long time since we've been able to claim that. Developments in the Dakotas and Montana and other places have suddenly made us the biggest oil player. As recently as '05, we imported 60% of the oil we used. Today, it's 20%. The leverage that oil-producing nations used to have now is significantly weakened. If a country decides to embargo, we can say, ‘Go right ahead.’ That changes a lot of dynamics. It brings a lot of business back to the US and begins to establish different patterns. Pipeline makers can't keep up with the demand.”
• Increased credit activity
“Over last six months, companies have been catching up with their credit. When times are tough, people try to hang onto their cash. Now there's less slow pay and fewer disputes, and fewer accounts up for collection. There's also more credit-application activity. The good customers are starting to come back and ask for credit.”
He said the “elephant in the room” from an economic perspective is the “fiscal cliff.”
He said there are four scenarios:
- “They can't figure out what to do and go over the cliff, and taxes go up and suddenly we go into a recession that would last from two to three quarters. The probability is 10% that is going to happen. The realistic rationale for not expecting the worst is that these are politicians and know we go back to the polls in two years. If they have utterly and totally messed with us, we are not going to be in a good mood and come 2016, we might elect inanimate objects.”
- “There is a ridiculously cobbled-together deal that is worse than what we have now. That is not likely.”
- “The least damaging possibility is that in this lame-duck legislation, we get a last-minute deal and two sides come to an agreement that basically is kicking the can down the road. That's a 40% chance. It depends on whether the current Congress wants to leave it to the next Congress.”
- “The most common scenario is a brief plunge — letting all this stuff happen and the new Congress picks it up in January. The logic being that it's a lot more politically feasible to reinstate tax increases than try to deal with the whole thing that exists today.”
He said that if the “fiscal cliff” can be solved early in 2013, the country has “a good shot at a pretty decent year” because most of the economic indicators are driving in a good direction.
“The good ol' American consumer is apparently tired of waiting,” he said. “The job situation has not gotten markedly better and people's wages are not going up. People don't have really a reason to get excited, but they are saying, ‘I'm going to have a good Christmas anyway. I'll worry about it next year.’”
He is cautious about the uncertainty involved in a second-term Presidency:
“It goes lame-duck after two years. The last two years of a President's second term are about as powerless as they ever are because now their party is going after them. If there is any hint of unpopularity with a sitting President, his own party runs away from him.”
“Second-term Presidents begin to think about their legacy. They're not running anymore, so traditionally they drift back toward the center because they're trying to get things done. And you don't get things done in a highly partisan atmosphere. So if you pursue the same polices you did as a first-termer, nothing moves and your legacy is awful. So we'll likely see Obama shift more to the right.”
“You get a pretty significant changing of the guard at the executive level. It's something we'll be watching closely in the next few months because whoever ends up in these positions will tell you a lot about where policy orientations are going to be. There will be a new Defense Secretary, a new Secretary of State, new people in commerce and labor. Pay attention to the Secretary of the Treasury. Right now, it's Tim Geithner, and he's retiring. Erskine Bowles is an interesting name because he has been a critic of the Obama White House. Put him in as Treasury Secretary and you get an instant response from the business community that the deficit is now going to be taken seriously.”