It’s that time of year again, when economic prognosticators put forth their forecasts for the coming year. This year I bring a different perspective to the forecast as I just returned from two months teaching business strategy and decision support in China.
There is a lot to report on my Chinese experience, but as it relates to the outlook for 2016, let me just say that the world has cooled down on the economic front while heating up on the geopolitical side.
A useful perspective for the coming year is the Yin and Yang of life — or how opposing forces are also complementary. The United States is finally getting what we have yearned for: low unemployment, low inflation, a rebound in housing prices, low oil and gasoline prices, a recent surge in consumer confidence and a strengthening dollar. Even the Federal Reserve’s modest interest rate bump is welcomed. The Yang, or bright side, finally seems to be dominating.
But then there is the Yin. The global economy is in the dumps, thanks to unsustainable real estate investment in China (the world’s second-largest economy); a massive economic and societal restructuring in Europe; devalued currencies around the world (especially in Russia and other energy producing nations); overwhelming migrations due to droughts, wars and economies; low and negative natural rates of population growth in developed nations and terrorism.
In the old days, the U.S. led the global economy due to our relative size. But today, U.S. gross domestic product only represents 22 percent of the world’s GDP, so it is harder to pull the world along with the U.S. economic expansion. In addition to the global economic doldrums, the retirement of Baby Boomers and persistent low wage growth has reduced the reliable winds of our consumption-driven economy to an uncertain breeze. The short-term prospects are tempered by the long-term fundamental environment.
In 2016 the U.S. can count on slower exports, continued contentious politics and more volatile equities markets due to global conditions. High corporate taxes are driving many companies overseas.
A key element for 2016 will be wage growth. Will it gain momentum, adding to the improved consumer confidence created by home values and low gasoline prices? Another major determinant will be the labor market’s ability to address acute labor shortages in critical economic sectors without a supportive national immigration policy.
In 2016 the U.S. can count on slower exports, continued contentious politics and more volatile equities markets.
In all likelihood, 2016 will see continued U.S. growth. The electorate’s optimism will reign during the first half of the year as everyone is optimistic about their candidate winning.
But the year will end with half the electorate disappointed and pessimistic about the future. From a numbers perspective, 2016 should be the year of twos — 2 percent growth, 2 percent inflation, 2 percent wage increases, 2 percent of the electorate determining the outcome of national elections, and a 0.2 percent decrease in the unemployment rate.
Colorado will continue its above-average performance as our population grows. The best news about the state’s economy will be the distribution of growth. Rather than being concentrated in Denver, Boulder, Fort Collins and Greeley, growth in the Pikes Peak region and the Arkansas Valley should increase on a relative basis.
The Pikes Peak region should continue enjoying a more robust economy, even as key construction projects like the Colorado Springs Utilities’ Southern Delivery System wind down. Housing investment should remain steady, if relatively affordable and attractive housing for empty nesters and early retirees can be produced. Downtown revitalization will experience real progress with new apartments, the Catalyst Campus and the U.S. Olympic Museum. UCCS will continue its capital investment programs to support what may be one of the fastest-growing universities in the nation.
Redirecting $50 million a year to roads and bridges will be beneficial. Other private sector initiatives that will drive the local economy in a positive fashion include non-store retailing, app development for smartphone technology, a restructuring in the defense contracting sector and continued growth in the city’s emerging health and wellness sector.
The new model of military intervention and defense based upon cybersecurity, special operations and missile defense should both keep more of our troops home, spending dollars locally.
Best wishes for 2016. Let’s hope presidential campaigning, terrorism and a more volatile equities market don’t allow the Yin to dominate the Yang.
Tom Binnings, senior economist at Summit Economics, can be reached at firstname.lastname@example.org.