Sunday, January 01, 2006

Sobering economic words

While the U.S. media and it's politicians continues to trumpet the success of the Xmas season, The Guardian in the UK has more sobering words in an article titled, Bosses Predict Year of Pain:

In the survey of more than 100 FTSE top executives, MORI found that two thirds, 66 per cent, expect the economy to worsen in 2006, while only one in 25, 4 per cent, believe it will improve.

With analysts expecting rampant US growth to stutter in 2006, little sign of a recovery in the eurozone, and consumer spending at home still under pressure from rising taxes, businesses have plenty of reasons to be nervous about the year ahead.

Despite their pessimism about the general outlook, most senior executives expect their own company to be able to ride the storm in 2006. More than half - 57 per cent - thought business would improve over the next year, while only 11 per cent expected things to get worse.

For those of you not familiar with the state of the European economy, Britain has been the economic powerhouse, the bright point, in the Euro economy for most of the past 5 years or more. Did you miss that point about the US growth expected to stutter? Many people on the lower rungs of the ladder would be quite surprised to hear that. For one, it's not being discussed outside of the financial media much and secondly, the people on the lower rungs are just now starting to feel some relief from an economic downturn that has been harsh to them, but a boom to upper management and wealthy stockholders - mush like the 80s.

Further on in the article:
After a so-so Christmas, retailers are pinning their hopes on a second quarter-point cut in interest rates in the new year. Bosses from multinational firms, which tend to be more exposed to fast-growing global markets in the US and Far East, are far more upbeat about their prospects than their domestic counterparts. Seven in 10 multinationals expect their company's fortunes to improve over the next 12 months, against fewer than half of domestic companies.
A "so-so Christmas"? U.S. media has yet to report on that. Each year around Thanksgiving they begin to trumpet the success of Christmas sales. Sometimes that's true, yet other times the media wake up in January with a huge hangover and report that sales were down (though the headlines aren't nearly as large, presumably because the drunk can no longer take loud noises). It's a ritual that I've often seen repeated in our media. I am skeptical of the numbers until they are reported early in the following year. The ritual clearly demonstrates to me that the media feel it is their job to promote rather than report on the Xmas season business climate.

Also of note above is that British companies that are multinational expect to thrive. Interesting because if the U.S. economy sputters, then these companies are expecting that either they are super competitive, their losses in the States will be minimal, and/or things will be mitigated by strong growth in Asia.

The coming year in the U.S. is an election year. Many Republicans up for re-election are balking at White House plans for the political season. These politicians see the road ahead as being particularly troubled despite the fact that many live in districts that, under normal circumstances, are considered safe seats for their party. The war in Iraq is weighing heavily on the people at home. The economic up tick has not hit a large number of people. The Baby Boomers are growing older and the health care system is abysmal. Companies and governments in the U.S. that have legally under funded their pension plans for decades are now going to have to face the music and make up for lost time as the Bush administration has put them on notice that the government cannot be expected to step in.

As noted in an earlier post, I expect that the Bushies will begin bringing home many thousands and possibly most of the troops in 2006 in order to assist in the election year. Oil prices will remain unusually low despite more troubles in the middle east and Central America as executives at those companies attempt to assist their favored legislators. Stock holders and corporate execs will see a slow down in their profits, forcing many to insist on cuts and pulling back of plans to upgrade or expand. The worst pinch will be felt by workers on the lower rungs of the ladder who will continue the spiral of concentrating more on domestic concerns.

For Democrats, this could be a perfect mix of factors that could provide them with significant election gains. However, the leaders of that party are weak and rather than promoting a positive vision, they spend too much time harping on Republican failures. Yep, it's the 80s all over again, only due to the economic mismanagement of the 80s and 90s, I predict an even larger pit to dig out of than before. The Boomers have been in control of the keys of power in the U.S. for quite a long time. Over the next decade or two they are going to have to face the music for the decisions and policies that they have allowed their politicians to pursue. It's going to be an ugly mess. The much vaunted powerhouse economy that was supposed to dig them out of their ill conceived policies is not happening and it will not be big enough even if it began happening tomorrow(remember Cheney saying that deficits no longer matter?). Much like the drunken U.S. media around Xmas time, which the Boomers control, the spending of the government and corporations (to shareholders and executive pay) without sound savings plans (something politicians love to chide individuals over, but don't bother to chide corporations over) has resulted in a huge hangover about to sweep our shores. For the media, it's always in winter. This could be a long winter in America (80s song by Gil Scott-Heron).

No comments: