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Predictions for 2010

After some weeks gathering mountains of data to support various predictions it became apparent that there is enough information for several discussions. My predictions pertain primarily to local government but relate to the broader society. In particular, I am deeply concerned about state and local government – and our communities where we live and work and, for the most part, where leadership decisions have immediate impact. Let’s begin with two major interrelated concerns- oil and economic recovery.

Oil – We cannot continue to avoid discussions about the realities of peak oil and how the relatively rapid decline of oil reserves will impact society. Even though it is a platform for daily life, economic vitality, and industrial progress, few seemed inclined to address and plan for the impact of declining reserves or the hoarding that accompanies every decline in a precious resource. This cannot continue. The good news is that, according to Jad Mouawad in his New York Times article (9/24/09), over 200 discoveries have been reported in dozens of countries by huge oil conglomerates (Exxon Oil, ConocoPhillips) as well as by smaller players (Tullow Oil). Oil prices have stabilized at around $70 per barrel after falling to $34 in late 2008. Oil companies have stated that prices must be above $60 a barrel to support development of existing and new reserves. I believe that oil prices will continue to meander upward toward $85-$90 a barrel as exploration and oil field development continues. Per gallon cost will increase but will support supply and production at a level that may extend peak oil predictions another two to three decades. Because there have also been new discoveries of natural gas coupled with amazing new extraction technologies, price escalation will also be moderated as supplies remain stable. This will allow time for technology to provide greater vehicle efficiency, alternative energy sources, and much more emphasis on conservation.

Economic Recovery – It has been said before and needs to be repeated – economic recovery will be slow and just because citizens want and expect good times to return quickly, it just won’t happen. There are too many ‘converging variables’ that mitigate rapid recovery – personal and corporate savings are still far too low; people and too many businesses are overextended financially and have too much debt; global financial markets are afraid of the huge U.S. federal debt; the foundation of trust so critical for healthy financial markets has been eroded and is not likely to surge back any time soon; overall income, sales, and property taxes will be lower and will create Catch-22’s as local governments try to balance stressed budgets while sustaining service levels. Entitlements are not being addressed by elected representatives who will continue to squabble over earmarks and political agendas while the U.S. digs itself deeper. Social Security, Medicare and Medicaid are especially onerous and are looming as disasters-in-waiting. Unemployment will continue to remain high, perhaps drifting below 9 percent by 2011 but close to 10 percent through 2010. I see high unemployment for several years- it might be 2013 or 2014 before we see unemployment drop below 7 percent. There just isn’t the right mix of economic development opportunity, future vision, international trade, natural resources, new markets, etc. to generate a lot of new jobs. Will some growth occur? Yes, but in most communities job growth will be stagnant and the impact on municipal commerce will be very negative.

GDP will grow about 3 percent in 2010 with perhaps one million new jobs. Consumers will open up a bit, with approximately 2 percent more spending, after contracting to 1 percent in 2009. After falling to around 600,000 in 2009, housing starts should exceed 700,000 – and perhaps will exceed 800,000 if banks become more cooperative. This is still far below the 1.5 million new housing starts we have grown to expect, but a new beginning. Generally, traditional businesses enter 2010 in a hyper conservative mood; spending will be careful and major expenditures will be delayed as long as possible. This, coupled with reduced federal government stimulus spending, will dampen any opportunities for rapid growth and accelerated spending. (Significant amounts of the $787 billion stimulus program will continue to be spent, but several elements – tax breaks for home buyers, extended jobless benefits, additional food stamps, COBRA subsidies, and other special programs will expire in 2010.)

Many state governments are in dire straits. Budget shortfalls already total in the tens of billions and should grow. California alone has a $42 billion deficit and projects the elimination of close to 60,000 jobs. This is in addition to already furloughing 238,000 jobs to reduce its deficit. Well over 50 percent of the states are struggling to balance budgets – and all of this will impact municipal government as funds are cut and programs reduced.

Infrastructure should receive more funding – up to $50 billion more for infrastructure spending, which will target airport, mass transit, water systems, and waste treatment construction projects. There is also talk about another form of stimulus – around $100 billion to create or save jobs. This should have bi-partisan support as mid-term elections draw near.

The auto industry is in a major transformation and the reality of its ‘recovery’ is not widely discussed. In actuality, auto sales declined from a historic annualized 16.5 million vehicles to between 9 and 10 million in 2009. While ‘recovery’ is an optimistic term, this industry in fact may never return to more than 12 million vehicles in annual sales. Between 1950 and 2008 the U.S. increased from 49 million to 250 million vehicles on the road. However, in 2009, 14 million cars were scrapped while around 10 million were sold, shrinking the fleet by 4 million vehicles. If this trend continues (which I believe it will), the U.S. could have fewer than 225,000 cars/ light trucks on the road by 2020. Light rail, express bus systems, and other transportation modes could very well converge to further shrink the auto industry – reducing this key industry’s contribution to GDP.

2010 is a transformational year. In my new article, The Tyranny of Normal, I discuss the tenacity with which people hold on to what they consider ‘normal.’ We expect shopping malls, great highways, ample drinking water, clean streets, waste treatment, and a host of other services. Public demand has never been higher and, as services are stressed or reduced and their quality or breadth diminished, there will be a clash between expectation and reality. I am concerned for our communities as they continue moving through a very difficult transition. Mayors, Councils and Commissions will be petitioned to provide ‘normal’ service levels when that is no longer impossible. How will they respond? What will they say? How can they prepare? Are their communities moving fast enough and in the right direction?

More predictions and discussion on the ‘new normal’ in my next Blog…

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. John is the author of Operations Planning: A Guide for Public Officials and Managers in Troubled Times, and The Strategic Planning Guide, both published by the International City/ County Management Association (ICMA). An innovative and dynamic presenter, John is frequently asked to speak and consult on how to prepare public organizations and communities for emerging challenges (public futures at http://www.futurescorp.com).

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