Last updateThu, 18 Oct 2018 4pm


Prosperity in the Age of Decline

BEAULIEU-SCREEN-75THIn his address to VMA’s Annual Meeting in September, ITR Economist Alan Beaulieu was generally optimistic. “Life is good right now in the U.S.,” said Beaulieu. “The 2014 rate of economic growth was a bit higher than the 3.8% we had projected, and while the rate of growth will slow a bit in 2015, it is still expected to rise by 2.4% next year.”

Life Left in the Economic Recovery

Beaulieu pointed out that the growth in U.S. GDP is not as robust as it was in the past, but part of that is simply the size. “The larger it gets, the more it takes to match that kind of growth. But it is growing and will continue to do so between now and 2019.” Beaulieu said that the estimated growth for 2014 is expected to be 3.8%, and based on that growth, ITR predicts it will be up 2.4% in 2015.

While it may not be as robust as was hoped, Beaulieu pointed to several factors that point to a continuing recovery from the Great Recession. One is geopolitical. “The world is relatively calm,” he said. “Iraq and Syria are politically important, but from an economic point of view, they are not a factor. Regarding this business about Russia and the Ukraine, we do very little business with them.” He maintained that sanctions against Russia are going to hurt Europe much more than the U.S. “However, it can affect the U.S. because Europe is a large economy that we trade with. Also, if the Euro goes down, the dollar will go up. If you’re sourcing from Europe you’re happy. If you’re competing, then it’s not such a good thing,” he said. “Really, the difference between Europe and US is stark. We fixed our problems from great recession; Europe still trying to do that.”

In Canada, retail sales doing well and Beaulieu sees more expansion ahead. Progress in Mexico is also a positive factor according to Beaulieu. “Thing are looking good short term and long term there,” he said. “The opening up of the country’s oil and gas sector to foreign investment for the first time since 1938 is a very positive move for Mexico.”

Beaulieu is optimistic about the domestic economy because he believes there is no appetite for austerity in Washington. “If the government were to rein in spending, there would be a recession,” he said. “And, delinquency rates for consumer loans are very low, and banks are lending more.”

ITR graph 1Another positive is the decrease in the country’s dependence on foreign oil, dropping from 60% in 2005 to 32% in 2013. Beaulieu believes that shale oil and fracking around the world is going to make the world more stable. “I envision a time when we are not going to care about the Middle East,” he said. “If this region is irrelevant, we won’t need as much defense, so the DOD budget will go down and give us more dollars to spend on other things like the aging population.”

Also on the positive side, according to Beaulieu, is the fact that there is some growth in the private sector job market, currently about 2.1%. There are job openings, but the problem is finding skilled employees. “We have all kinds of vacancies. We want people with skills but we get people with attitudes and people that don’t pass drug tests!” said Beaulieu, who expects that the problem of filling the skilled jobs is going to continue for some time.

Ongoing Concerns

It is this lack of skilled, committed workers that is one of the concerns Beaulieu says will be a factor stunting economic growth. The average hourly rate is up 2.3%, so it is costing more to hire people than it did in 2013. “It’s going to cost you to keep your A and B players. The only way to counter this is, rather than hiring more people, look more to automation. The job opening problem is going to be with us for a while,” he concluded.

ITR graph 2The aging population is also a big concern for Beaulieu. He compared the costs by age categories for health care in the U.S. which is spending ten times as much on health care as other countries like Germany, Sweden the U.K. Beaulieu contends that legal immigration would help the US because then there would be people to fill jobs that Americans won’t fill and would provide the taxes that are needed to cover the expenses created by the retired, aging population.

He expects that inflation is going to be a major issue in the next few years. “As we pay people more and more, they have more discretionary funds. This could lead to inflation,” said Beaulieu, “which will ultimately have a negative impact on the economy, especially as interest rates rise.”

According to Beaulieu, there will be a big rise in interest rates, from 0.25 to 3.5% over the next few years. “This will show up everywhere and will have a negative impact on the economy – especially as we get closer to 4%,” he said. “This is another reason you should borrow now, invest in real estate, expand your business, whatever you plan to do. Get the money now.” Beaulieu warned that the inflation rate by 2030 will be as high as it was in 1980.

Another concern for Beaulieu is China’s economy. “If it slows, then the US will also slow down because China is a major market and, if they stop buying U.S. debt because of their own debt, that could be a major problem,” he said. Europe’s continuing woes, decelerating corporate profits and higher Affordable Care costs are also worrisome, and since there is no real plan to balance the federal budget, Beaulieu expects that the country will add a trillion dollars a year average to the debt between now and 2038 and that by 2035 it will consume 25% of the U.S. budget.

Existing home sales are still in the negative area, and the housing affordability index is also going negative. That means a lot of what would normally be first time homeowners are not buying homes. On the other hand, manufacturing is being brought back to the U.S. Companies like Apple, Rolls Royce, Yamaha, Honda, Lenovo, Airbus, Bayer Chemical, GE and Siemens have built new or brought back factories and jobs to North America and the U.S. is once again exporting cars.

Preparing for the Future

There will be slower growth in 2015 as compared to 2014, but there will continue to be growth in 2016 and 2017. To avoid the pain of what he says is an imminent mild recession in 2018/2019, Beaulieu recommended that now is the time for companies to develop growth strategies, find and eliminate bottlenecks and invest in customer market research. Invest in people, plan for higher wages, borrow now while rates are low, and invest in efficiencies.

Beaulieu maintains that the expected recession in 2019 won’t be as severe as 2002, but it will be worse than that which struck in the mid 1990’s. It is expected to begin in the second half of 2018, but between now and then, there will be continued economic growth. “Watch out for 2030, though,” he warned. “It will be like the 1930s but with technology. There will be terrible with massive unemployment, bread lines, foreclosures, and the fact that Congress is not going to do anything about it, that’s terrible!” Beaulieu said that no matter which political party is in charge, it is not going to change his forecast. Demographics, inflationary trend and debt will all converge at the same time, creating the perfect storm that will result in a great depression.

In the meantime, though, Beaulieu gave a list of 8 “must watch” items that will help businesses and individuals grow now prepare for the near term. They include the ITR leading indicator, housing starts, the bond market, the US leading indicator, the purchasing managers' index, retail sales, employment figures, and nondefense capital goods new orders.


While there is continued, slow growth expected between 2014 and 2018, 2019 will see a contraction in the economy. However, businesses can avoid much of the pain of that recession by investing now in the people and processes that make their companies more efficient and profitable.

Kate Kunkel is senior editor of VALVE Magazine. Reach her at This email address is being protected from spambots. You need JavaScript enabled to view it.. Judy Tibbs is editor-in-chief of VALVE Magazine. Reach her at This email address is being protected from spambots. You need JavaScript enabled to view it.


Subscribe Fall18


• Print magazine
Digital magazine
• VALVE eNews
Read the latest issue

*to qualified valve professionals in the U.S./Canada

Looking for a career in the Valve Industry?

ValveCareers Horiz

To learn more, visit the Valve Careers YouTube channel to watch the videos below or visit ValveCareers.com a special initiative of the Valve Manufacturers Association

  • Latest Post

  • Popular

  • Links

  • Events

New Products