Last year in early January I posted “What to Expect in 2012 (and Beyond).” Some of what I expected last year has rolled over into 2013. With more than a month to go before we step into 2013 it is a little risky to make predictions, particularly when much of what is predicted depends on the resolution (or not) of the fiscal cliff. I believe we will reach a resolution and actually take some steps toward overall fiscal reform. That may be the biggest and most important expectation which sets the course for much of what else could occur. Hopefully, op-ed pieces like Steve Rattner’s in the 11/25 Sunday NYTimes will become part of the dialogue in Washington. Keep in mind that the expectations below follow the Byron Wien approach, i.e., my view is a greater than 50% chance of these expectations coming to pass while the conventional wisdom is less than that. Let’s plunge in.
- With the resolution of the fiscal cliff and some steps toward overall fiscal reform, big corporations and small businesses step up their plans for 2013 and beyond, affecting hiring and capital spending. The rest of the US economy joins the housing recovery, producing growth in the US exceeding 3.5% for the year with at least one quarter printing over 4% in spite of the trade deficit expanding.
- The US experiences double digit growth in capital spending as delayed plans are finally implemented with resolution of the fiscal cliff.
- Unemployment works its way lower by a percentage point. Unfortunately, the number of jobs unfilled increases substantially as the mismatch between skills and needs comes into stark relief.
- The new leadership in China, while taking a conservative social stance, takes additional steps to insure a decent recovery in economic growth. The strength of the US economy aids China’s recovery.
- While the noise about Greece grows and is joined by more concerns about Spain, Italy and France, Europe continues to muddle through with interesting support from the Middle East and some support from China.
- As Moore’s Law marches on, Samsung and others introduce advances in tablets and communications devices which puts pressure on Apple that reflects itself in relative stock performance. Apple does an interesting pivot which changes the landscape for even more robust consumer devices.
- The Argentine situation is not contained and has an impact on politics, growth rates and inflation for its neighbors, requiring more attention to South America from the US than we have been willing to give thus far.
- As we enter the year end 2013, because of the surprising global growth, there are some unsettling signs of inflation. QE is reduced and expectations for a rise in rates increase.
- The US stock market has a good rise in the first half of 2013, but inflation concerns and a possible Fed reaction push markets down in the latter part of the year reversing some but not all of the earlier gains. Analysts find themselves chasing earnings for much of the year.
The next few expectations are holdovers, with some modifications, from 2012. They may not all come to pass in 2013. None of them were complete in 2012. But as we move further into the decade, in my view, they will likely happen, and will have an impact on how our future unfolds.
- Contrary to a normally quiet year during a transition of leadership, to some extent in reaction to some elements of an “Asian Spring” in the region, China takes several steps in response to a more activist populace upset with corruption, the environment, and some areas of economic stress. Externally, this includes significant acquisitions in other countries as well as the opening of manufacturing and service facilities where there is a receptive government. At home, R&D is accelerated, particularly in alternative energy, space and IT processing. Subsidies for hydrocarbons are reduced and an explicit carbon tax is put in place.
- As the US economy grows, corporations find qualified hires difficult to come by. Enlightened corporations become educational institutions to provide skills and basic knowledge to a work force that has been idle and undereducated by the public systems. Corporations become much more vocal about creating paths to bring illegal immigrants into the US system, expanding visa programs and finding other mechanisms to add talented labor to the domestic pool. The tide shifts significantly on immigration issues. The skill match is aggravated by decisions on the part of some US corporations to bring business operations back into the States. Labor costs are rising elsewhere and the elements of control, rule of law, productivity, available feedstock and relative safety lead to better economics for manufacturing and service locally.
- Aside from the continuing concerns about Europe and the ripple effect of the Argentine situation on South America, India becomes a focal point. With the economy not growing adequately to provide jobs, upward mobility and political stability, the leadership looks for diversions and points to its neighbors, China and Pakistan as problems. There are internal confrontations as well. While there is limited impact on the global economy, the uncertainty affects foreign investment and India’s outsourcing businesses.
On balance, this is a set of optimistic expectations with some trouble spots, as always, diverting our attention. I am optimistic about what can happen, certainly within the US, as long as the crazies in Washington get a bit rational. If not, I will need to spell out a whole new set of expectations. It will be an interesting year.