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Economic Projections and Actionable Advice

Economic Projections and Actionable Advice

One of my goals is to educate my clients and friends as to what is really happening in the economy and what steps they should take in order to place themselves and their organizations in the best position for success. In that light, where are we? We are nearing the bottom of this recession, but still have very high unemployment, a government with huge debt, falling commercial real estate prices, a stock market on a speedy recovery from March lows, consumers making a shift in value, and a dollar that is down 20 percent since March.

People continue to ask me if I believe we will fall into a depression and/or another massive economic meltdown…I think that scenario is unlikely (however, if our government does not slow down spending – all bets are off). It is why I am writing this post to give some positive insights and hope for the future. All is not lost.

There is much danger ahead if our government does not start to control its spending or if our dollar were to collapse. I do believe the recent November elections are a sign that Americans are waking up and indicating that they are not in favor of runaway government spending. As for collapse of the dollar, China, Japan and other countries would need to sell off treasury notes rapidly into the secondary market leading to a massive drop in the value of the dollar (and widespread inflation). I do not see that happening, as it is still in the best interest of Asian countries to hold onto their U.S. treasury debt and keep their largest customers’ economy healthy. At least until they have a better/bigger market to sell into. This is unlikely any time soon.

What I see going forward is that the recovery will be regionalized. Certain states and regions are finding the recession is much worse than other parts of the country. Here in Pennsylvania (and particularly in Central Pennsylvania) we are seeing many signs that the bottom of the recession has arrived. We also never had a huge run up on our real estate values and therefore, the collapse has been much softer for us. I still think that nationwide 2010 is setting up to be a year with very little growth, except for government stimulus spending. Based on our monetary policy, the dollar will continue to fall until we get inflation (and probably after as well). It would appear here in Pennsylvania that deflation (downward price pressure) will stop in 2010 and then inflationary pressure will appear. Many economists are calling for inflation to be over 5% starting in 2011 and beyond. All governments (Federal, State and Local) are struggling with lower revenue and therefore 2010 and beyond will bring higher taxes. We will also see many more audits (the 2010 budget includes the hiring of over 5,000 IRS revenue agents).

So here are some actionable steps business leaders should consider:

* Higher interest rates are coming, consider locking in interest rates during 2010 (fixed contracts, swaps or other derivatives, consult your banker).

  • Consider renegotiating your lease and lock in those rates for as long as possible to counter the effects of coming inflation.
  • If you are a landlord, try to avoid locking in rates on a long term lease without an inflation clause.
  • Foreign Investment – As the dollar falls in value, our goods become cheaper overseas. Consider exporting to foreign markets for opportunities (or at least start the process of exploring).
  • Lock in future prices on commodities as they will be going up.
  • Avoid locking in prices of future goods or services to customers (if you must – consider including escalator clauses).
  • Consider buying a competitor to gain market share or to gain economies of scale.
  • Consider investing to expand operations, equipment or real estate.
  • Position your company toward “green” and sustainability as money is pouring in this direction.
  • Start investing in E-Commerce as more people are buying online. People want to do business with organizations that are Human, Engaged and Responsive. If done properly, social media will help your organization achieve these desirable results.

Remember the profit equation states that profits come from RISK. What risks are you preparing to take in 2010?