Many business owners are asking, just what should I expect in 2011 and beyond in terms of growth and demand? Recent 2011 forecasts from Kiplinger’s include:
* GDP Growth 2.8%
* Unemployment Ending 2010 at 9.5% and slightly lower in 2011
* Prime Rate 3.25%
* 10 Year T-notes 3% by late 2011
* Inflation of 1.5%
* Crude Oil $75-%80 barrel in early 2011
Demand and pricing is scattered. The deflation debate seems to have softened as prices are stable and flat (projected to rise 1-2% next year). Upward pressure on raw materials and commodities such as cotton and copper are higher. Providers of some consumables such as gasoline, coffee and cereals are raising prices, while prices for electronics, computers and automobiles are eroding. [i] A battle could be brewing over “rare earth” elements 95% of which are controlled by China. Materials such as Lithium, used in micro-electronics and products such as iPhone batteries could skyrocket.
The jobless recovery continues. While the addition of 151,000 jobs in October was encouraging, it would take 20 years of growth at that rate to return back to the level of employment before the recession. Over 2% of Americans have been out of work for a year or more, and with the eventual waning of unemployment benefits, the future is bleak for the unskilled. As a whole, soft employment and tepid housing prices will offer little in the way of a significant recovery; and the economy will be split between growing and sluggish industries.
The most creative and opportunistic will flourish. Forms of social media and online marketing are practically free, providing impetus for those with a great idea to get the message out quickly and cheaply. Those with cash will buy up competitors and commercial real estate.
Venture Capital investment has exploded from the depths of a cataclysmic drop to less than $4 Billion in Q1 of 2009 to a projected $11 Billion by Q4, 2011.[ii] With multiples exceeding 6x, this is still a great time to sell a business.
The Federal government is about to enter a phase of complete stagnation. Splintered ideology will not provoke much in the way of bipartisanism and compromise. Consider health care. A complete repeal of the health care is unlikely, and Republicans will push for less costly reforms. But Parma, and the medical community are gearing up for the addition of nearly 30% of Americans who are uninsured and offer the industry new volume. In the absence of legislative movement, the administration will be forced to rely on regulatory actions led by political appointees and their cronies. Early signs are that the Fed’s attempt at “quantitative easing” is not moving the needle very much on lending.
Emerging markets continue explosive growth in Singapore, China, India and Brazil (representing 75% of global GNP growth in 2011).[iii] Infrastructure stocks continue to boom. Cloud computing enables continued strength in the technology sector.
There is momentum behind the return of low level call center jobs to the U.S. as “rural outsourcing” is hot in information technology and other sectors. Small town America offer substitutes for outsourcing, including Indian Tribes offering U.S. based alternatives, at only 10-20% premium from their Asian counterparts[iv] .
There is plenty of room for optimism. Competitors are weakened, and companies with strong balance sheets and cash flow should prosper. Well run companies will invest based on relatively stable macro-economic assumptions. The strong will get stronger. Focus on being one of them.
[i] The Kiplinger Letter November 19th 2010
[ii] Money Tree Reports
[iii] The Kiplinger Letter November 19th, 2010
[iv] Rural Outsourcers” Vs. Bangalore