Strategically Speaking

Economic Outlook – Time to dust off that crystal ball

  

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 Author: Pat True, rtrue@profitstars.com

Forest Gump definitely would recognize the current US economy because it so closely resembles his box of chocolates.  You never quite know what to expect each day when you try to gauge the business outlook.  Some industries, like transportation appear to be making their way back from historically low levels while others are still limping along.  For some sectors its business as usual while others, such as energy and auto manufacturing, are engaged in the process of totally re-inventing themselves.  The same can be said of the American work force.  Unemployment rates continue to hover above 9% and consumer confidence charts look like the blueprint for your average roller coaster.  The questions for those of us in banking are – How will all of this impact our business during the current year, and will we see a return to loan growth?

As many businesses begin a stage of measured growth to pre-recession levels, demand for bank loans is likely to follow.  Much has been written in the press about the credit crunch as one reason for the slowdown of bank lending, but little has been noted about the fact that loan demand has been low to nonexistent during the past three years.  For banks ranging in size from $100M to $1B, Commercial & Industrial loans on the books declined by more than 8.5% during 2010.  That trend is not likely to continue.  Key industries within the US are poised to experience more significant growth as 2011 continues.  Moreover, these industries are the tried and true banking clients including farm equipment, auto parts, aircraft parts, building material, machine tool and others.  Most of these are capital intensive business sectors that require investment in equipment as well as working capital financing – especially as annual growth rates exceed 5%.  These are also industries that help create opportunity for smaller satellite firms as well as for the labor force.  Here is a brief list of some of the more promising industry growth forecast courtesy of *First Research:

The big question for the next twelve months is - Will it be enough?  At best, the current US economy is a mixed bag.  Labor markets appear to be mending, but the return to an unemployment rate south of 6% is likely to take several years.  In the short term, higher fuel and food prices are likely to curb consumer spending and slow the recovery.  Ongoing crises overseas are also likely to impact the rate of expansion here in the US.  Still though, I’m optimistic on the economy because of the opportunities it presents.  We have a chance to change everything from how we work to how we make cars to how we create energy.  Those changes themselves will create new industries and new jobs that will lead both the US and the global economy forward.

*Data taken from March 11, 2011 report provided by First Research, a division of Hoovers, Inc.   Hoovers is a Dunn and Bradstreet Company.