CEO Q Magazine Interview
Part 2: U.S. Economic Outlook 2009 & 2010
What is the US Economic Outlook for 2009?
In general, 2009 will see more economic decline, financial
market volatility, and financial shocks and losses. This is caused by the
economic cycle correction, speculative and short-term investing, and the global
Jobs will be lost at a
rapid pace. Businesses and consumers will reduce their spending. The inventory
of homes will rise and the prices of real estate and stocks will fall further.
The damage to collective psyche of the investors, consumers and businesses will be
significant and the economy will take time to recover. This vicious downward cycle requires
painful socioeconomic actions in order to make the necessary corrections.
Obama’s fiscal stimulus package, bailout and other economic
policies can soften the fall, but are unlikely to reverse it anytime soon. We
expect to see the bottom fall out around late 2009 or early 2010.
Most analysts tend to underestimate or overestimate the growth
and decline cycles. Our analysis indicates that 2009 will have mixed results for
different industries, the hardest hits will be in the financial, real estate,
auto, retail, construction, furniture, airlines, advertising, and disposable
income industries (tourism, gaming, hospitality, and travel). The relatively
unaffected or growth industries are the export industries, food, alternative
energy, education, new technologies, and healthcare. The general economic
decline cycle will bottom in 2009 and we could see stability sometime late 2009
or early 2010, then we will be back to modest recovery in late 2010 or early
2011. However, the real estate, construction and financial industries will bottom in 2010, the recovery could start in 2011.
Jobless rate could hit two digits. This is not
counting those who cannot find jobs or who have stopped looking, or those
who work part-time or who have received pay cuts. Obama’s job creation plan,
through infrastructure investment, can reduce the jobless rate in 2009/2010.
However, the cost will result in a larger budget deficit and a negative
economic outlook for years to come. While investing in a new
infrastructure creates new jobs, these investments do not create new income or
self-sustaining jobs. Only new successful businesses can create and sustain
The real estate market will hit bottom in 2010. The exact
timing and recovery of real estate prices depends, in part, on
foreign investments and how strong the government program is in stopping the
foreclosures and improving liquidity.
Consumer spending will be reduced. Consumer
spending accounts for about 70% of all US economic activities. Loss of home
equity and tightening credit could result in an increase of consumer’s
bankruptcies. Low oil prices will not last for long. Retailers and
discretionary spending industries will suffer.
Business spending accounts for about 10% of US economic
activities. It is not unlikely to see the reduction of capital and operation
expenditure by 10-20% or more by the end of the cycle.
GDP growth will come mainly from government debt spending.
Prices will deflate in general mainly for real estate, national
products and services. Imported material costs will rise. I'm less worried
about the US currency in the short term, but more worried in mid to long
term. There is a minor risk of inflation tied to wrong Fed
policies. On the other hand, I see asset bubbles and inflation risks for
emerging economies by the end of 2010 or early 2011. With global inflation
risk on the rise, we could see more socioeconomic troubles and political
unrest in economies with thin middle class. 2011-2012 will be challenging
for many policy makers in US and the world.
Exports and Trade Deficit
Export industries and US-based Multinationals will benefit
from the decline in the dollar value and will have an edge in competing
globally. However, if the government makes more policy mistakes, causing the
dollar value to fall significantly, the investors could flee the
dollar-dominated investments and this would further hinder the recovery
The 6 key variables in determining the timing and the rate of
the recovery are:
The effectiveness of the new U.S. economic policies in establishing trust in
the US economy,
the health of America’s innovation and entrepreneurship engines (financial
the global political and security climates,
the oil and commodities prices,
the dollar exchange rate,
the interest rate.
Behavioral finance tells us that these factors are the key
elements of the investors and CEOs' confidence that are needed for recovery.
CEO Q Magazine Interview
About Med Jones
Med Jones is the president of International Institute of Management. He is recognized as one of the few experts who predicted the US financial and economic crises of 2008.
In a policy white paper, he challenged the US President's State of the Union Address, Federal Reserve Chairman and
mainstream economists. His predictions were the most
comprehensive and accurate among the experts who warned
about the crisis. The original warnings can be found at:
- The institute’s 2006 policy white paper:
U.S. Economic Risks & Strategies 2007-2017
warned about key risks for the decade, including the housing
bubble, consumer and national debts, trade and investment deficits, and
Reuters: When the Fed, major
investment banks and leading economists denied the housing bubble risks and
asserted that the impact of the subprime mortgage defaults is limited to a
few companies in the financial sector, the institute warned about the
widespread impact of the
bankruptcies and the loss of confidence in US
economy (March 2007)
Jones is a non-partisan technocrat. He can be