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Forecast for Q2 – General Thoughts and Data

There are mixed signals coming from most sectors – some positive, others negative. The best we can do is to look at the data and calculate how these “converging variables” will impact our communities.

·         As most know, GDP will continue to lag, but there are signs it will not fall to the 2% – 2.5 % growth contraction originally predicted. Most likely, we’ll see growth at -1.8% to 2%. Still not good, but getting better. Caution is the main characteristic in every state and community…

·         Interest rates will continue to be low, with prime at around 3.25%; this is good for those who choose to borrow and will help boost business as stimulus funds work through the system.

·         Speaking of stimulus funds, have patience!  This is a financial phenomenon that takes time and will have many fluctuations over the next several quarters – well into 2010. Housing will pick up, although more slowly than communities would like. There is a huge amount of inventory that must work its way through the market. I wish there had been more effort to let truly bad mortgages fail instead of propping up so many poor loans. The correction may take longer due to messing around with so many really poor mortgages. However, this is a ‘damned if you do, damned if you don’t’ phenomenon. There are downsides to virtually every alternative so second guessing is rampant, but not very productive.

·         Due to the time needed to work stimulus funds through the huge U.S. society and financial system, unemployment will continue to grow – perhaps not past 10%, but probably to 9.5% by year-end. We’ll watch this carefully because it has a huge impact on every state and community. I don’t see momentum slowing until well into 2010 and then it will take time to get people back to work. Three years to return to under 5% unemployment would not surprise me, and many who find employment will be ‘underemployed.’

·         Oil will continue well below 2007-2008 highs, with most industry analysts predicting crude averaging around $60 or less a barrel as we get into the second quarter. It could increase during summer months, but reduced travel may keep prices lower than predicted. This is a huge stimulus for the U.S.

·         Better news on trade – the deficit is decreasing to around $450 billion, which is 3.2% of GDP for 2009 and still very high. This is important…it could be a key barometer of overall long-term growth and, if exports accelerate, will help energize the recovery.

·         Public pension funds are being watched carefully. All are getting hammered by the market and some will be in dire straits within a few years. More specifics on this in later blogs.

·         Many of my law enforcement contacts are very concerned about growing violence and crime – especially as unemployment  benefits run out. Even with extensions, there are many who have not saved, cannot find a job, and will soon have no benefits. This creates a powder keg of survival instinct driven by hunger, fear, frustration, and anger. People with few alternatives will seek to survive…and in some areas it could get dicey. Public safety is aware of this and is preparing in most communities. Smaller communities have fewer resources but could have more opportunities to provide neighbor-to-neighbor assistance.  Unemployed people with insufficient resources are a BIG negative with enormous potential to upset recovery plans. Get ahead of this curve with proactive plans to help the community…along with plans to react to safety and security issues.

·         There is far too much finger pointing and accusatory language around Washington, coupled with political grandstanding. None of it deals with reality – and that reality is that complex economic problems, as during the 1930s, require a lot of government funds to bridge the period before the market can find firm footing. If private enterprise cannot pour money into the economy, the government must. Patience is the key…let the plan work and amend as new data is absorbed. This is a new, very different world than in the 1930s. The Administration has started a series of curative actions; those actions will morph many times as the U.S. and global markets react. The key is to watch, remain ready to react, be unafraid to act, and gather every ounce of available new data. This is happening. Q2 2009 will see improvement over Q1. But there will be fluctuations that will impact every level of government, especially those agencies without clear plans, good data, or the will or process to respond.

·         Consumers will spend less, but will still be out there making sensible purchases. This contraction will endure far beyond 2009. It may be the beginning of a new era characterized by fiscal responsibility, less reliance on credit, lowered (and more realistic) expectations, and a trend toward more long-term thinking.

·         I see the opportunity for more collaboration and partnering in the next several years. Private-public and public-public collaborations are essential and will bring new efficiencies. Begin or continue exploring new models that expand options at every level.

As a corollary to the above, this is the perfect time for federal, state and local officials to consider what specific agencies should look like five or ten years from now. It appears that the current trend is toward more government and perhaps more intrusive government (I heard this again today from a financial services professional). I am not so sure this is a viable trend. It may be a reactive and curative/preventive action that might not endure at its present level. What will endure is the public’s interest in fairness, truth, and services. Unfortunately, we live in an entitlement society where everyone wants government to provide services but no one wants to pay the freight. This must end. I encourage government entities to disclose information about available funds, reveal what basic services are provided at what cost, and ask the public to decide what is essential. Some governors insist on transportation projects while others see education as more critical. Many see water or wastewater projects as first priority. Whatever stated priorities, as noted recently in another blog, the key question is ‘What is most important for long-term development, health, safety, and prosperity?’ We’ll explore this in more depth soon.  4/7/09


With over three decades working in and with federal, state and local government, John Luthy understands public agencies.  Known for his real world, straight talking style, he is a leading futurist specializing in city, county, state, and federal long-range thinking and planning. An innovative and dynamic presenter, John is frequently asked to speak and consult on how to prepare public organizations and communities for emerging challenges. He holds both the MPH and MPA degrees as well as a doctorate in education.

One Response

  1. You’ve hit the ball out the park! Icrndeible!

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