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What About the Economy?

Posted by Larry Doyle on December 16, 2011 7:54 AM |

With many eyes focused on the ongoing demise within the Euro-zone, what about our own economy?

Is that proverbial light around the bend merely another train coming the other way? Or utilizing another railroad analogy, can our economic caboose continue to chug along under the weight and duress of so much excess capacity and baggage?

Well, given the fact that I have limited trust in economic releases from our friends in Washington, let’s review a private survey of chief financial officers produced by Duke University, >>>>



>>The outlook among U.S. CFOs has improved this quarter, with stronger hiring and spending plans relative to last quarter. At the same time, U.S. CFOs remain cautious about the future and peg the odds of a recession by mid-2012 at about 1 in 3.

>>The situation in Europe is much worse than last quarter, with no growth expected in spending or hiring. The outlook in Asia has also softened.

>>U.S. finance chiefs plan to expand their workforces by 1.5 percent on average over the next 12 months, a staffing increase that would yield an unemployment rate of approximately 8 percent, down a point from today’s 9 percent rate.

>>U.S. CFOs rated their optimism in the nation’s economy at 53 this quarter (on a scale from 0 to 100), higher than the recession low of 40 in February 2009, but lower than the long-run average of 60.

>>U.S. profit growth will slow to less than 8 percent, compared to 20 percent one year ago.

>>With the debt crisis continuing to unfold, things are worse in Europe, with optimism down and very little to no growth expected in hiring, business spending or earnings.

>>Asian CFOs are the most optimistic about 2012, but the outlook has dimmed as CFOs’ optimism rating declined to 57 from last quarter’s 60.

The Duke University/CFO Magazine Global Business Outlook Survey is done quarterly. In the most recent survey, which concluded Dec. 9, 1,050 CFOs from a broad range of global public and private companies were asked about their expectations for the economy. The research has been conducted for 63 consecutive quarters, making it the world’s longest running research on senior finance executives and one of the most comprehensive surveys of its kind.

“The 1.5 percent increase in employment is an improvement from the 1 percent increase that was projected last quarter. With a 1.5 percent increase in workforce, national unemployment should fall to near 8 percent by year-end 2012.” – John Graham, professor of finance at Duke’s Fuqua School of Business and director of the survey

Perhaps we should remind the professor that the real focus in unemployment is not merely the national unemployment rate BUT rather to a MUCH GREATER EXTENT the health of our labor market is measured by the participation rate.

How are we doing by that standard? Well, the participation rate of 64% sits at multi-decade lows and is trending lower. More and more people have literally given up looking for work.

“It’s encouraging to see this rebound in optimism because increases in CFO optimism have historically preceded improvements in the overall economy. Still, the level of optimism is low by historic measures, suggesting that economic growth will remain relatively slow.” – Kate O’Sullivan, deputy editor at CFO Magazine

“Even more worrisome than CFOs’ recession fears is that 46 percent of CFOs have no plan in place to deal with a recession next year if it happens. It seems like they will wing it, which is shocking because the risk is substantial at 31 percent as opposed to just a couple of percentage points.” – Campbell Harvey, a Fuqua finance professor and founding director of the survey.

What is my take on this survey and our economy as a whole? I continue to believe our economy has a severe case of ‘walking pneumonia’. We have continued to borrow against future growth via the financial charades played by our central bankers and policy makers. The structural changes ongoing in our economy will take many years to play themselves out.

Our economic locomotive is working exceptionally hard to get up the hill but the deleveraging process and accompanying deflationary dynamic within our global economy continue and those simple realities are not changing anytime soon.

We remain in the midst of a long, cold, slow economic slog.

Navigate accordingly.

Larry Doyle

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I have no affiliation or business interest with any entity referenced in this commentary. The opinions expressed are my own. I am a proponent of real transparency within our markets, our economy, and our political realm so that meaningful investor confidence and investor protection can be achieved.


  • fred

    Free markets are a fantastic allocator of capital. The problem we have now and have had for awhile is that central banks have decided to micro-manage capital markets with injections of liquidity.

    Markets are not being driven by variables such as growth and inflation which create sustainible longer term economic trends and reversals but by negative real rates within the context of an overlevered economy interested only in deleveraging.

    Within this setting, liquidity searches for a home but soon overstays its welcome.

    The only trade making any sense in this environment, the volitility trade. Low volitility begets high volitility and high volitility begets low volitility.

    There is no fundamental economic rationale to capital allocation, it’s either risk on or risk off, sometimes for a few weeks, sometimes a few days or even hours.

    How does a business plan for the long term, invest its profits or allocate scarce resources without any idea of what real demand really is?

    What’s the end game, will markets still be able to function independantly if and when the gov’t finally does step aside?

    How about those new industries that could someday help us grow out of this mess, how do they compete sucessfully for politically controlled capital resources?

    The only way we get beyond the mistakes of the past is to restructure non performing debt. The only way we get back to supplying real demand is for the gov’t to step aside so markets can efficiently reallocate capital.

  • Joe

    Well Larry,

    I am sure you have noticed the IMF now claiming we must ALL contribute to bailing out Europe (read as bailing out European banks and bankers, not the people!) or we are likely to soon see ourselves in a devastating 1930’s depression. Despite the fact that 40% of all IMF funds.. come from U.S. Taxpayers.. our government seems to think they now have us sufficiently cowed that they can move on further with their plans to bankrupt our middle class now and for generations to come.

    The fear is being turned up considerably.. and I suspect it won’t stop until they bleed us dry and/or finally offer up their one world government solution once we have all had enough economic misery that we will yell Uncle and give in to any solution they propose. I suspect the bad news is just getting started. I am not at all sure that we will experience a decade(s) long slow grind.. as things could easily spin out of control at any point along the way.

    As for the opinions of large corporate CFO’s.. well, I worked with those wankers for almost 25 years and I would say their economic opinions hold about as much water as a styrofoam cup shot through with holes. I would bet a dollar to a dime that unemployment will be higher next year, not one percent lower. The real economy is hanging by a thread and no amount of government fabrications can cover up the mess we are all in at the present time.

    Also, with somewhere between 76 million and 92 million baby boomers about to stop purchasing and begin to save everything they can for their futures, whether retirement figures into that future or not, our government would have to grossly devalue the U.S. Dollar by announcement (say by 60% or more) in order to start ginning up enough inflation to even begin to offset the deflationary spiral headed our way.

    While I cannot in good conscience suggest that the average American has any clue whatsoever about the real economy or that any reasonable percentage of them have yet even seen through any of the lies and manipulation so boldly being practiced by our elected representatives, I can only hope that enough of them decide to vote with their wallets and perhaps refuse to purchase anything other than food and current housing expense… until our politicians get the message of who is really in control.

    If that does not happen by sometime next year.. then perhaps it will all have to come down around our ears before we wake up and stand up for the rights granted to us in the U.S. Constitution, which seemingly means almost nothing to the current political hacks now in control in D.C.

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