Optimistic But Realistic - Editor's Note
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Optimistic But Realistic

By Kim Phelan

Article Date: 03-01-2010
Copyright(C) 2010 Associated Equipment Distributors. All Rights Reserved.


An economy that has been on life-support may not have the get-up-and-go we're hoping for next year.

Optimism is a curious thing, both a blessing and a curse depending on how you look at it.
 
Let’s talk about optimism and the U.S. economy, as well as the construction equipment industry. I hear a lot of talk about a flat 2010 and anticipated, tangible recovery in ’11. While it’s nice to try and look on the bright side (and I personally am wired with an internal antidepressant mechanism) I’d have to say my confidence in better-days-projections that soon is rather thin.
 
I’ve been reviewing the Q1-2010 Optimism Quotient (OQ) published by Wells Fargo Construction, based on survey data collected Jan. 4-13 from construction equipment dealers (53.4 percent), contractors (33.9 percent) and industry service suppliers (12.7 percent.) The summary authors call the current OQ of 66 “decidedly cool,” but compared to the all-time low OQ score of 38 at the same time in 2009 I’d say it’s almost giddy! (Of course all things are relative – five years ago the OQ was 109.)
 
But the industry business people who completed the Wells Fargo survey are no fools – the executive summary states: “Although almost one in four construction executives say they anticipate an increase in local construction activity, perhaps the more telling number is that almost half believe activity levels will remain at the overall depressed levels experienced in 2009.”
 
That sounds balanced enough. So do the survey’s data indicating the majority of executive respondents don’t expect improvement in either local nonresidential or residential activity to improve till Q2 -2011 or beyond.
 
Perhaps one cheery finding: 62 percent of contractor executives indicated they intend to buy new construction equipment in 2010. Almost the same number (61 percent) indicated they intend to buy used construction equipment this year, the summary stated.
 
No! Resist the urge to let that news increase your long-term Optimism Quotient.
 
Where did I get this wet blanket? Maybe I’ve listened too carefully to economists, and one in particular has had a dampening effect on my outlook – Dr. Eugenio Aleman, is the chief economist at, yes, Wells Fargo Construction, and when I heard him present in January, I jotted down a few key words and thoughts that he gave to an audience of invited Wells Fargo dinner guests.
 
Dr. Aleman is a charming, engaging and witty speaker – I laughed several times. But his message was not for weak stomachs.
 
I believe I could see the tongue in his cheek when he told us the recession is over. Two seconds later he asked, “Is this recovery for real?” I’m paraphrasing slightly, but he contends that our economy has been on an IV in the Intensive Care Unit, and its doctors, if you will, have been The U.S. Federal Reserve and the U.S. Treasury. (I might also add that the Surgeon General in this metaphor has the initials O.B., but that’s a separate medical discipline I’ll save for another time.)
 
Let me tell you the highlights I came away with that evening, and you weigh them as you see fit:
  • The economy realized 5 percent growth the last quarter of ’09, thanks to the life support it received – but that growth is probably not sustainable.
  • The labor market is a big concern – at 10 percent and counting, he thinks unemployment will continue to go up to 11 percent.
  • Inflation is creeping back up. In fact, he has coined the term stagflation, meaning he anticipates inflation will be accompanied by stagnant economic activity.
  • Interest rates are a big threat.
  • Ours was a “Humpty Dumpty” economy in 2009 – and we have not seen any of the “king’s” horsemen put anything back together again.
  • Brace yourselves: The U.S. economy is going to double-dip.
  • We’ve given many handouts, but what happens when we can no longer give away all this money? Eventually, somebody has to pay.
  • The fact that the federal budget deficit is 10 percent of GDP puts an enormous strain upon the U.S. economy – and on U.S. taxpayers.
  • Taxes are going to go up.
 
I realize many of us may have lost confidence in the federal government to do anything unrelated to its own self-preservation, but I nevertheless urge you to come to Washington for AED’s infiltration into the back halls of Congress in April. I’ve put a few photos from last year’s Government Affairs Conference on our Facebook page: www.facebook.com/aednet. Hope to see you next month, and thanks for reading.
 

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