It is so hard to make solid predictions about the economy for 2012 because unpredictable events like the earthquake-tsunami in Japan and the floods in Thailand in 2011 will always happen. But so what. We have to make some assumptions and guesses if we are going to run our businesses. These are mine for 2012.
1. Growth in the industrial economy will accelerate. Automotive in North America is hot and getting hotter. I particularly like the growing market share of vehicles being made here−reaching 70 percent−and the rising production of pickup trucks. The Ford F-150 sold almost 600,000 units in 2011.
Some interesting tidbits coming out of the Detroit Auto Show which started yesterday illustrate trends. Sergio Marchionne, head of Chrysler, complained yesterday that he can’t add a third shift at Detroit’s Jefferson Street assembly plant because he is 220,000 engines short of what he needs for the Jeep Grand Cherokee. He blames it on “suppliers who can’t play.” Honda also announced yesterday that it will build its first American made Acura in Ohio. This will be the first Japanese luxury model made in the United States. The supply chain is stressed today at 13 million units. If we hit 15 or 16 it will demand a lot more production from the domestic supply chain.
2. Housing in America will finally hit bottom. Rental housing is already booming and the pickup truck sales reflect that because small truck sales are fueled by purchases of contractors and tradesmen. If business has seen solid growth since 2010 without the housing piece, look for a rapid uptick if builders really start building.
3. It’s an election year so President Obama will move toward the center regarding business (except for millionaires and billionaires).
4. Ben Bernanke will keep interest rates low and the dollar relatively weak, thus keeping companies in the U.S. and attracting foreign businesses to a low cost country.
5. The oil and natural gas drilling boom will get stronger in America. This will stimulate employment and enhance the U.S. position as a net energy exporter.
6. The ample labor force will be augmented by returning military people. Even though the press is focused on a labor glut, there are at least three million unfilled jobs waiting for able, eager people to fill them. Veterans could help fill the need. Also the recession in Europe could pull ambitious young people to America, illegally and “sort of legally” helping to propel this country. I think a lot of tourist visas are going to be issued to Greeks, Irish and Spaniards who will stay here as long as they can.
With these plusses we still have some negatives to worry about.
1. The Iran dilemma will continue. Iran’s development of nuclear weapons is a problem that will not go away. The more America and Europe push on them the more they push back. We are probably near a low-grade war with them already. If we strangle them economically with sanctions, they may start firing at our big boats in the Straits of Hormuz or lob missiles at the nearby Saudi oil fields. Obama is trying to push the mess into 2013, but things could get nasty soon. A preemptive strike by Israel is still on the table. We could be looking at a doubling of oil prices if shooting starts.
2. The Germans might not hold up the European spendthrifts making the Euro start to collapse. This could mess up the world banking system and dry up credit everywhere including here. We saw how we were all tied together by the natural disasters in Asia in 2011 and the banking debacle in Europe could be much worse.
3. Risks we haven’t thought of. China sees a “Chinese Spring” and overreacts. Terrorists start shooting up American colleges and shopping centers. Robots rebel, a bad virus pops up, or a million other scenarios. These things could happen, but meanwhile we must live and plan for the now.
My overall prediction for 2012 is 4.5 percent growth, an amazing Olympic Games, and no “peace in our time.”
Question: What’s your favorite pickup truck, and why?