Economist Alan Beaulieu (of the Institute for Trend Research) is well-known in the distribution world as a prolific speaker at association events and often remembered for his frightening Recession in 2009-2010 theory. When I asked him recently whether there were opponents to that idea, he replied honestly: "Of course."
Beaulieu's forecast is based on the idea that we are already in a slowdown in part due to the housing decline, high interest rates, baby boomers' approaching retirement (resulting in government budget strain), high oil prices (and the impact that will have on consumer spending) and demand for oil in India and China, inflation and pressure on wages, and a slowdown in business spending. He uses a series of graphs that show how the current trends have lead to recessions or severe slowdowns in the past.
However, in the near-term, he says there is less than a 5% chance we will slide into recession in the next 12 months. 2008 won't be a "fantastic year, but we will see growth." The housing downturn will level off and we can start breathing more freely.
Here's what other economists have to say:
In a recent BusinessWeek article by Standard & Poor's, the authors say that historically there has been a "high correlation" between declines in residential construction and recessions. Apparently, every recession since 1960 has been accompanied by a year-over-year decline in residential construction. But, the authors point out, there has not been a recession every time there has been a housing decline. So the authors do not predict a recession this time around thanks to the breadth of the overall economy, a weakening dollar's attractiveness to foreign investors – and its positive impact on export demand, and the Fed and Treasury Department's aggressiveness to stay ahead of a recession curve.
The Mortgage Bankers Association's chief economist forecasts that overall economic growth will slow through the rest of this year, and will return to normal in the second half of 2008 and into 2009.
The Canadian Press reports that in its latest World Economic Outlook, the International Monetary Fund projected that the global economy would grow by 5.2% in 2007 and moderate to 4.8% in 2008. The IMF lowered its forecast for U.S. growth, predicting the economy would expand by just 1.9% this year and next, reflecting the impact of the worst housing slump in 16 years and the credit crisis. Although "risks of a recession have risen" in the U.S., The Canadian Press says, the IMF predicts instead a "more prolonged period" of subpar growth.
Since it seems that economists have a hard time agreeing on what will happen in the next two years, it is prudent that distribution company owners plan cautiously for the years ahead. Beaulieu says owners should focus on debt reduction, building cash on hand, watching long-term capital expenditures and checking the impulse to add to fixed costs. During a downturn, fight the impulse to cut costs by slashing work force numbers; instead build inventory, invest in capital equipment and hire good people (they will be cheaper at this time).
