Quick Look at the Economy | Economy, Forecasts, Global, Agriculture, Financial Services, Construction | TrendTalk

Quick Look at the Economy

2016 isn’t off to the greatest economic start if you’re anywhere but the United States. China’s stock market has flirted with free fall, the Middle East has Shia-Sunni outright war in the tea leaves, and commodity prices have all but collapsed. The EU and Japan still pass the mirror test to see if they’re breathing – but barely.

With clients in agriculture, financial services, and construction on the agenda for the first half of the year I’m asked to weigh in. Generally, I’m optimistic.

There are problem areas. Commodity prices in the low range means crop farmers see the end of their 6-7 year run of record returns. Not a lot of new pickups in the shed these days. It’s a return to eking out profit from slim margins. Livestock producers benefit from lower feed prices. A lot of eyes are on the presidential election where a Republican win could affect biofuel policy that’s been buoying up grain prices – with corn as the leader. Plus the El Nino introduces even more weather and moisture uncertainty than usual. The dollar is expected to remain strong, working against exports. Huge amounts of US grains are sold overseas and the competition is stiff.

Financial service companies – banks, insurance, credit unions – depend on a stable to rising economy to produce loan demand. A GDP performance for the US economy usually points to a reasonably good year but it’s not quite that simple. The Fed is raising interest rates, albeit tentatively. The rest of the world is not. It makes for difficult decision-making. I’ll be in the room for about a dozen strategic planning meetings in this sector this year and the discussions will be “interesting.”

No sector deserves a better environment than construction and the outlook is fairly good this year after nearly a decade of abysmal to bad news. Commercial construction for 2016 should be up. One of the key indicators, billings at architectural firms, were up significantly for all of 2015 which should translate to buildings coming out of the ground in ’16. The home building sector is also looking positive. The National Association of Home Builders is projecting about a 25% increase in 2016 year on year despite some nagging worries about labor availability and costs. Job creation is a big driver in this sector.

But the question about whether the US economy can stand up to a world slowdown still stands. There are several factors that work in the country’s favor:

  • The US is so much better an investment destination than other global regions that it stands to attract more capital.
  • US consumers, as long as the job outlook remains strong and fuel prices remain low, will spend.
  • China is a totalitarian state. Don’t overlook the possibility that it can do almost anything it wants to get growth back up to a 5% GDP range. Plus it still possesses huge cash reserves.
  • The EU and Japan don’t have a great recent track record for growth but neither do they stand to take a deep dive into recession.