The U.S. economy began 2009 flat on its face, and ended the year standing shakily; 2010 saw it beginning to move forward, with a stumble at midyear; 2011 should see growth accelerate slowly through the year toward a stronger 2012.
Economists’ estimates of national Gross Domestic Product for 2012 cluster in the 2.5 percent to 3.6 percent range, weighted towards the lower end, though most expect a higher rate in the second half.
The Associated Industries of Massachusetts Business Confidence Index, based on a monthly survey of employers across the Commonwealth, reflects the same pattern. From an all-time (19-year) low in February 2009, at 33.3 on a 100-point scale, it rose to 45.7 by December 2009, and edged into “positive ground” above 50 in May-June 2010, then fell back into the 40s before topping 50 again in October and November (the December results will be released Jan. 11). Survey respondents expect business conditions to improve very modestly over the six months ahead. They also expect conditions in Massachusetts to continue to be more favorable than those prevailing nationally.
Massachusetts, in a departure from recent experience, has fared relatively well in this cycle, losing fewer jobs than most states and beginning to regain them more quickly. Although the state’s growth has slowed from early 2010, it is forecast to strengthen considerably by mid-2011. Construction, professional and business services, and leisure and hospitality are likely to add jobs most rapidly, while state and local governments face serious fiscal issues. Manufacturing should benefit from domestic growth and from exports, especially to Asia where expansion is well established.
The moderate growth foreseen for the state and nation will not be sufficient to bring down unemployment steadily. The national unemployment rate may rise; the state will appear to do better, but largely because of slower workforce growth. A weak job market holds down consumer confidence, while employers wait for rising consumer demand before hiring – it will take some time to work our way out. Meanwhile, weak job creation and low consumer confidence will keep down demand for commercial real estate. Expectations for inflation and interest rates are now tending upwards, but are still low.
As we are all more attuned than we used to be to risk and uncertainty, we must acknowledge that this mildly positive scenario could go badly wrong. Even fairly conservative forecasters put the chance of a “double dip” recession in the neighborhood of one in three, with an economic meltdown in the European Union (presumably much more serious than the mini-crisis that slowed our recovery in mid-2010) the most likely proximate cause. With the economy still struggling, and both the Federal Reserve and our political leadership narrowly constrained in their ability to respond, a new downturn could be very damaging.
Businesses, therefore, face the challenge of positioning themselves to take advantage of the likelihood of modest but accelerating growth, without exposing themselves unduly to the dangers of contraction. This situation places a premium on judicious management with an eye to both opportunities and risks.
André Mayer is senior vice president, communications and research, Associated Industries of Massachusetts, Boston. Email: amx@aimnet.org
