State of the Economy – January 2010

Well a new year has started and it’s time to return to reality. The jobs report is out and 85,000 jobs were lost in December, when the market expectation was to have no movement. Bit of early optimism to carry us over the holidays.

The end of the year up swing can partially be attributed to the economic stimulus that was injected in early 2009. The effects of stimulus will wear off by the end of Q1 2010 and at that point in time the economy needs to be able to grow organically. With most Americans having lost much of their wealth through decimated home values and peaking unemployment, organic growth is not a reality. My personal expectation is that the stimulus injections will continue. The Obama administration cannot stand back and not act. Inaction would be a sign of weakness that the administration cannot afford with the 2010 Senate elections approaching.

I believe that with additional stimulus injections, the economy will slowly continue to grow with some fluctuation. Over time home values will start to rebuild, enabling the current workforce to plan for growth. The growth curve will be long and painful… ten years might be right. I’ve commented on this in the past and I believe we will see a generation of currently unemployed marginalized out of society. We will read books in ten years that will carry titles like “The Lost Generation”. Those with jobs have already started to consume and that is why we are seeing modest retail growth, but with 10%+ out of the equation, with little hope of rejoining, what you’re seeing is what you’re going to get.

The way that goods are sold is changing. We now have Cyber Monday. NexusOne and Kindle are already sold directly without channels. Airlines offer lowest fee guarantees for passengers who buy direct. With democratization of media even the traditional marketing and PR industry is being stream lined out of the equation. The point is that even as we modestly consume ourselves out of this recession, the new business models are able to handle much higher volumes without the need to add headcount. DOW will rise, but we will lose a generation regardless.

A recent article posted that the Euro zone has surpassed the US economy in terms of wealth. I believe that 2010 will be far worse for the European employee than 2009. I predict a double dip for Europe with added inflation pressure from the global market.  Just today an article warned that Finns should get ready for 6% mortgage rates (currently at 3%). The Euro zone’s new #1 status will be short lived. Due to the more rigid structure of the Euro zone economy, the growth out of the second dip will be painful. Europe equally faces a lost generation.

The good news is that those companies that are streamlined and still functioning are, in my opinion, out of the woods and poised to growth steadily with the new economy.


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