Even if the President and Congress are able to solve the Fiscal Cliff debacle, the U.S. economy is predicted to stagnate with 1.5% annualized growth[i] in early 2013, expanding to 3% by the end of the year (which could drop dramatically if no fiscal compromise is reached). Inflation is hovering at a modest 2% and the Fed has indicated that it will not raise rates much above zero until unemployment reaches a target of 6.5%. While unemployment is expected to drop to 7.5%, it would take a small miracle to ease below 7% this year. U.S. exports are expected to rise 5%, assuming stability in currencies.
Contrary to unfounded perceptions, U.S. manufacturing has been relatively strong, contributing 75% of total GNP growth over the last two years. In the last two quarters, manufacturing has pulled back considerably, including particular weakness in defense and transportation equipment.[ii] Look for soft manufacturing job growth in 2013.
What they refer to as austerity in Europe is a “fiscal cliff” in the U.S. (we are such drama queens). If you think our taxes are high, compare with France where the leftist leanings have upper rates set at 75%[iii]. While much of the press has centered on Greece, Portugal and Spain, the weakness of the French could drive Europe further into the abyss. Further economic instability in the region is likely.
Mongolia will sport the world’s highest projected growth at 18%.[iv]: China’s growth has cooled of late but is expected to maintain at an 8% growth rate. China’s economy generates $6,900 per person (about a 7th of the U.S.) and inflation of 5%. China’s new communist administration is expected to make few policy changes.
World economies are forecast to grow as follows:
North America 2.2%
Western Europe .3%
Latin America 3.9%
Asia 6.4% (excluding Japan)
Select industries such as automobiles are surging. U.S. automakers sparked by the loss of automobiles in Hurricane Sandy, expect a spike of 7% increase in volume.
Energy is the wild card. A recent ruling that allows U.S. firms to export natural gas could open up the floodgates in a market depressed by oversupply. While world events and accidents may drive fluctuations in energy prices, the fundamentals are better than they have been in decades, as the U.S. moves toward greater energy independence.
Health Care will be 18% of U.S. GDP (by far the most of any nation in the world; Germany is second at 11%). Companies are already seeing unprecedented increases in their premiums. Many companies will opt out of nationalized health care and pay the penalties. Some employers (such as restaurants) will move employees to part time to reduce their health care burden.
IT services and consulting continue to expand as companies find ways to exploit the cloud. Global growth of software services is expected to double to 6%. Big Data will lead the way in terms of technology innovation as companies exploit relational databases (large databases that can talk to each other), and mine information differently.
Industries not expected to fare as well include media (still being commoditized by the internet), pharmaceuticals and mining. Some raw materials such as copper are still in demand and could spike further.
Happy New Year, sort of.