Dr. Alan Beaulieu is a frequent presenter at VMA events, with an impressive record for accurately predicting economic developments. In a webinar early in December, Beaulieu shared what he and his team at ITR Economics foresee going into 2016 and early 2017.
Where We Are
“Don’t you get bogged down in the negative stuff going on in the world,” said Beaulieu. “Bad things are going on, but they are not having a big effect on macroeconomics in the United States. Banks are lending and there is much more money out there. There are more than $1.8 trillion in excess reserves. The world is generally making money. That includes Canada, the U.S. and Europe. Remember, a healthy Europe helps the global economy; it helps with sales opportunities for everyone here.”
Beaulieu said that global leading indicators are heading up, which means economic expansion. Also, in the U.S., the service side of the economy is very good. “It’s bigger than the manufacturing side now. Also, there are lots of job openings,” he pointed out. “If you have a skill and can pass a drug test, you can get a job.”
Beaulieu pointed out that, while the U.S. GDP and industrial index have slowed down in the last quarter, that doesn’t mean the economy is breaking down. “It just slows down. This last quarterly growth rate was at just 0.9 percent, the lowest in 5 years,” he said. “But the last 12 months in aggregate showed record high levels of industrial production. So it’s just slowing.”
There has been a softening in the year-over-year rate of change in 2015 compared to 2014, but, according to Beaulieu, the American economy has gone well past recovery from the 2008 recession. “Retail sales have never been stronger in terms of dollar amounts and the number of people working in the private sector is higher than ever.”
Near Term Outlook
Beaulieu predicts the softness of the last year’s rate of change, brought about in large part by low oil prices, will ease and 2016 will be better and stronger than 2015, especially in the last half of the year. He expects the positive growth to slow a bit in 2017, but there will still be growth.
Beaulieu also anticipates that oil prices will move up through 2016 and believes inventory will be coming down. “In Canada, it’s 3% lower than year ago levels and Mexico is also down 3.8% year over year. In the U.S. it has been moving lower since August and in Saudi Arabia inventory been contracting since July of 2015,” he said. “The Russians, however, have not made a clear commitment to reduce. But if inventories continue to come down, then prices are likely to go up.”
More good news for the United States, according to Beaulieu, is the fact that, at least for the next decade, it is producing 90% of the energy the country consumes. “Low cost, stable energy is a big enticement for businesses to build in the U.S.”
On the other hand, if oil prices stay low for a long time, it makes for instability in nations under stress from low oil prices. “If they stay low,” said Beaulieu, “expect instability in those countries. South America is in recession, which is caused by drought and low commodity prices. That is also a drag on global economic growth.”
What to Watch
While many people are worried about the high U.S. debt, Beaulieu seems not to be concerned. “It’s not a big deal for us at this point,” he said. “However, we do need to keep an eye on China. Its problems are large. They devalued their currency. This is a signal that relates to their banking industry, which was lending too much. Too much easy credit to people who cannot pay it back has created potential for real instability. Rail freight is really down there as well, which is bad sign. Also, manufactured goods exports are down 0.2% year over year and electricity production is also in slower growth there.”
Beaulieu does believe that China will engage in a serious round of infrastructure spending. “It puts people to work, and helps the economy to spool up,” he enthused. “The trick is to get it to be self-sustaining. We will be keeping our eyes on China.”
Beaulieu is also somewhat concerned about the strength of the U.S. dollar. With the dollar too high, exports go down. We need exports up for manufacturers. And corporate profits need to be higher.”
However, he does see some hope as Europe recovers somewhat. “That will allow for less fear, which means less running to the dollar when things happen in the world,” Beaulieu observed. “With a more favorable view of the euro relative to the dollar, we could see some lowering of the dollar. And if China shows signs of stability, the dollar might give up some of this strength, which allows exporters a chance to compete around the world. We believe we should see some lowering of the dollar in mid-2016.”
Beaulieu believes that the stock market may be reaching a low at this time. He sees this as an indicator that the economy is going to soften a bit more, at least until the 2nd quarter of 2016, but still believes things will improve toward the end of 2016. “Good days are ahead,” he said.
Another negative note is in the business to business arena. “There is a decline right now,” said Beaulieu. “If you are in the business to business sector, this is painful, not as painful as what you’ve lived through before. This too will ease, and you can expect this recession to ease in March 2016. New orders should bounce back then.”
“We have an unaffordable healthcare system,” said Beaulieu. “This is a big problem down the road. Not that rates are going up unsustainably this year, but down the road it will be a problem. It is the same with the national debt. No, we’re not worried about it right now, but it will impact you in the next few years. Don’t get bogged down in this for today; you can worry about that in the next few years.”
Expect the Best, Prepare for the Worst
Beaulieu has often stressed that businesses must plan on spending more to get, train and keep good employees. “Make sure you’re committed to doing what you can to reduce the turnover in your staff. Spend time and effort to improve processes and efficiencies. Spend the money on the software and equipment, so that you can get more out of your workforce. And now is the time to do it, while interest rates are still very low.”
Interest rates will go up, according to Beaulieu, starting perhaps as early as December 2015, but certainly by the first quarter of 2016. “Borrow now while things are cheap and what you want to buy is going up in price. Borrow now and pay back with inflated dollars!” he urged.
Also, be sure that you have a clear set of competitive advantages. You have to know what sets your firm apart from the competition. If you don’t know, your clients don’t know. Wrap that into a message that your marketing people can get out there.”