What Will The 2013 Economy Be?
January 7, 2013 Leave a comment
Note: This is part 2 of a 2 part series looking back at the economics of 2012 and projecting the economics of 2013. Part 1 can be found here. Also, look forward to the Triangle predictions coming up on Thursday.
With the year ending and all the talk about the “fiscal cliff”, there has been a lot of talk of what will happen during the next 12 months. I feel like everyone can agree that the economy has seen better days and there seems to be indications that things are getting better. Here is what I think the economy will be doing over the next 12 months. Now as I stated last year, I am not by any mean the Oracle at Delphi, but this is my opinion based on a lot of reading and research by experts in their areas of expertise. Here are some areas of interest, including some not specifically discussed in Part 1 of this blog.
Many are predicting a growth rate ranging from 1.6% to 3%, consistent with 2012. Jan Hatzius of Goldman Sachs stated last month that “[w]e do expect another relatively weak year for growth in the global economy… (But) I think there are, underneath the surface, some important reasons why 2013 might feel a little friendlier than 2012.” And Goldman Sachs is actually forecasting growth to be below 2% for the first half of 2013, but growth is likely to improve starting in the second half of 2013.
According to the Financial Executives Research Foundation, CFO Quarterly Outlook Survey for December 2012, U.S. CFO’s optimism toward the U.S. economy dipped for the second quarter in a row. The most recent drop was four points to 51.60 (from 55.40 in Q2). In this survey, CFO’s are asked to rate the U.S. economy on a scale from 0-100, with 0 being the least optimistic and 100 being the most optimistic.
I think now that the we know who will be president for the next four years and that “fiscal cliff” has been resolved, at least in the short term, there is at least some understanding of what the 2013 economy will be. Most of us have yet to see our first paycheck of the year with about 2% less take home pay. In general, that is about about 2% less money flowing into the economy by consumers, which is either about 30% of the economy or 70% of the economy (based on which theory of economics you believe in). Either way, 2% is about $83/month for those earning $50,000/year. However, that translates into about $95 billion annually. Either way, there is a large amount of money that will not be spent in the economy and will be spent by the government to pay down money borrowed or printed.
Same disclosure as last year, this is the area I am least educated about. Even for a numbers guy, the market can be confusing if not followed constantly.
So based on that, many are saying that the market is likely to go down before coming back up in 2013 and everyone seems to remain cautious. JP Morgan’s U.S. equity strategy, led by famous bull Tom Lee, established a year-end 2013 target for the S&P 500 of 1580, which means a 10% return. Some of Wall Street’s top equity strategist predicted a range from 1390 to 1615.
Employment & Unemployment
At any given local area, it is difficult to determine what will happen, but hopefully the national trends with provide some insight to what might happen as you couple it with what is specifically going on with new job announcements and layoffs.
In its last quarterly outlook, the Fed said the unemployment rate would be 7.4% to 7.7% at the end of 2013, which is down from the September forecast of 7.6% to 7.9%. The rate still is not projected to drop below 7% until at least 2014, and would not hit 6.5% until at least 2015.
The CBO was projecting 9.0% unemployment in 2013 if the fiscal cliff issues had not been resolved. They have not provided a revision based on what was done.
Hiring managers and corporate HR leaders told CareerBuilder they expected more hiring in 2013, but the percentage of those saying that was only three points higher than a year ago. Among small business specifically, which are about 90% of all US businesses, 19% of companies with fewer than 50 employees plan to add full-time, permanent staff in 2013, up from 16% last year, while 24% of businesses with fewer than 250 workers plan to add full-time staff in 2013, up from 20%. It is a good sign that much of the hiring seem to be from small businesses, which are historically the drivers of employment growth and market recovery.
Also, Glassdoor.com’s fourth-quarter survey says only 40% of surveyed workers expecting their company’s business performance to improve in the months ahead feel that way. However, this is a drop from 48% just last quarter.
Also, numbers over the past several months seem to be optimistic about employment increasing. In the months of November and December, I personally know of 12 people that were hired, many of which were long-term unemployed (1 year or longer). I am hoping that this trend continues.
“Housing has to come back at some point.” I know many people, including myself, say this. Unfortunately, we all have been saying it for a while, too. A year ago, there were some signs that housing might be coming back in 2012. Well, I feel like we saw that. Not that it is 2005-2007 levels (based on where you live). I know of two people that recently sold their homes in less than 7 days at fair prices!
Freddie Mac predicts that its house-price index will rise by 2% to 3% next year. The National Association of Business Economists, extrapolating FHFA data, forecasts that home prices will increase by 2.8% in 2013. More aggressive projections came from JPMorgan Chase, which suggested that home prices in 2013 could rise by as much as 9.7% (if investors decide to take a bigger stake in the housing sector) and Standard & Poor’s predicts a 5% price jump this year. CNN Money stated they expect housing to become less affordable, prices to increase. Mark Zandi, chief economist at Moody’s Analytics, expects a strong year for housing, especially in the second half of the year.
I think everybody agrees that we have seen the bottom. However, the rise is not going to be what has been seen in the past.
Also, last week Hanley Wood Market Intelligence bought MetroStudy. In the construction research/intelligence world, this is like two of the three big industry companies becoming one. In others words, IT’S A BIG DEAL! What does this mean? To early to say, but I expect some fascinating things this year from the new company (which is keeping the MetroStudy name).
Overall, I feel 2013 is going to be better in most areas as compared to the last 2 or 3 years. However, it does not look to be like a gang-buster year. All indications look to potentially 2014 to be that.
What do you think the 2013 economy will be for the US? Do you have contingency plans if it is better/worse than you expected?
–J. Nolfo helps companies understand their market and customers though a variety of market research strategies. He has over ten years of experience of market research for strategic planning purposes. He is the Director of Research at Rhino Market Research. He shares his thoughts about market research and business concepts with his blog “The Rhino Crash Blog…Understanding Market Research in Business“. If you would like to discuss this blog or how J. can help you understand your market and customer needs, email him at firstname.lastname@example.org.