I have been following economic projections from Brian Beaulieu, an economist at the Institute for Trend Research (ITR), for the past 10 years. Overall, I’ve found his forecasts to be highly accurate. As an example, in 2003 he predicted the 2008 recession within months. ITR’s track record over the past 60 years is very impressive.
Beaulieu spoke at a meeting I attended this month and offered economic scenarios for the next 20 years. You can add his voice to the chorus expecting an era of permanent volatility. Assuming he’s correct, the road ahead looks like a roller-coaster.
You might find the details of his economic outlook helpful to your marketing. I’m not suggesting you base your marketing on an outlook approach. Rather, you could use the following scenarios he described when planning your strategies.
Bad news first. Beaulieu expects three recessions by the year 2019, including the most recent one from which we have "officially" emerged. That would make three recessions in 10 years. Between World War II and 2001, we endured on average only two recessions every 10 years.
Beaulieu is hopeful that by 2020, multiple recessions will have created political motivation to change the tax code. One of the biggest problems our country faces is the tax code. If it’s not improved, ITR expects to see a 10-year recession beginning somewhere in the 2025 to 2030 window, with the potential for widespread poverty and inter-city riots like we saw in the ‘60s.
Our budget deficit presents a severe challenge with far-reaching implications, and it could be compounded. He indicated that the current long-term projections for potential budget deficits are wholly and completely unrealistic and inaccurate. Those projections, Beaulieu said, are based on the Office of Management and Budget (OMB) using an economic growth rate of 5.04%. Yet, since World War II we have averaged 3.28%.
If you believe the next 10 to 20 years won’t be nearly as economically vibrant as the past 20 years, you have to question the growth rate figures.
He estimates that budget deficits will run at least 50% higher than projected. I tend to think we’re more likely to see deficits one to two times greater than projected.
Why is there disparity in the numbers? I can’t say for sure. I do know the OMB derives its figure by following input from Congress and whoever the administration may be at the time. If OMB projections are wrong and the deficit doesn’t subside, watch for the roller-coaster. Historically, unresolved debt fuels inflation followed by the painful cure, recession.
A recession increases unemployment, decreases spending and weakens the U.S. dollar (USD) – bad news for the economy.
On the other hand, a weak USD, relative to currencies of our agricultural trading partners, is good for exports. It could support grain and dairy prices. Beaulieu expects the USD to be weaker over the next three years against Canadian, Australian and New Zealand currencies. He says the Canadian economy is sending positive signals due to good demographics, strong natural resources and a balanced budget. Australia and New Zealand are also in this positive position, with good demographics and natural resources.
If we see high corn prices, there’s still the question of profits. High corn could also help to drive up, or at least sustain, the prices you pay to rent and purchase land. Oil in the mid-$120/barrel range by 2013, driven by demand from Asia and South America, will also impact production costs.
Inflation will drive up your input costs, too. Beaulieu believes a few factors could be behind this: Our government’s desire for inflation to help cover the cost of the national debt, higher labor costs here and abroad, and the high cost of our country’s green movement. Other market-moving scenarios constantly lurk all around us. You’re already familiar with them – drought, floods and world economic turmoil to name just a few.
Personally, I find economic forecasts compelling, and it’s not because I believe they paint an accurate picture of the future. It’s what you do with the information that’s most important. Knowing potential economic trends and considering the possible impacts on your marketing are the first steps to preparing for whatever the market may do. If you’re ready for a downturn, you can prosper through it instead of being punished by it.
I encourage you to remain knowledgeable about the big economic picture. As you may have read in this space before, I believe there are three broad keys to positioning your business for long-term success: 1.) Prepare your marketing for any scenario, 2.) Get out of debt, and 3.) Maximize the opportunities in the years ahead.
Scott Stewart is president and CEO of Stewart-Peterson, a commodity marketing consulting firm based in West Bend, Wis. You may reach Scott at 800-334-9779, email him at [email protected].
The data contained herein is believed to be drawn from reliable sources but cannot be guaranteed. Neither the information presented, nor any opinions expressed constitute a solicitation of the purchase or sale of any commodity. Those individuals acting on this information are responsible for their own actions. Commodity trading may not be suitable for all recipients of this report. Futures trading involves risk of loss and should be carefully considered before investing. Past performance may not be indicative of future results. Any reproduction, republication or other use of the information and thoughts expressed herein, without the express written permission of Stewart-Peterson Inc., is strictly prohibited. Copyright 2011 Stewart-Peterson Inc. All rights reserved.