On this new year eve we are looking to celebrate not only the new year but the start of a new decade. This is a good time for us to take a look back and see what we have achieved these last 10 years, and also look forward to the next period in our lives.
In this post we will take a look at where we stand now economically speaking and what 2010 has in store for us given the current state of the economy. We will also take a brief look at the opportunities that are now present and some that will shortly be appearing. So let’s jump right into it.
Undoubtedly, there are a lot of economic variables moving around that may at times give us contradicting indications and time just does not allow us to examine all of them. So here are the highlights:
The Stock Market
One of the first areas to look at is the stock market. As this post is being written, the Dow is hovering around the 10,545 range.
For many, this represents a nice rebound since the Dow finished 2008 at 8776. However, today’s “high” reading is no higher than where the Dow was in 1999 and in 1999 dollars the Dow would only be about 8200. This means that in order for the Dow to return to 1999 levels it would have to rise another 28%. Therefore, although it is moving in the right direction there still a long way to go before we regain our previous equity values.
City and Local Government Services
The economic impact has been especially difficult at the state, county and city government levels. The loss in property taxes and sales tax has continued to hamper many local government budgets prompting some to consider four-day work weeks. This is one trend that will not be improving in the coming year due to the continued foreclosures and lack of consumer spending. We can expect to see government services continue to be cut with many outreach programs taking the brunt of impact. Also, be prepare for some government agencies to begin aggressive campaigns to go after monies owed to them in order to make up for the shortfalls.
According to MasterCard Advisors’ recent SpendingPulse report, U.S. retailers saw stronger performance during the 2009 holiday shopping season, with sales up 3.6 percent. The report showed that part of the increase was due to a 15.5% increase in online purchases. This is better than what retailers experienced in 2008 where they saw the worst holiday performance in decades. Yet, Kamalesh Rao, director of economic research at SpendingPulse, cautioned that the return of retail spending was “tentative” and remains far below 2007 levels.
Even teenagers are beginning to cut back and lowering their expectations according to a New York Times. This has resulted in double digit sales decreases at stores such as Abercrombie & Fitch, Hot Topic and American Apparel.
The fact remains that with the increase in unemployment and continued tightening in credit, the ability for consumers to spend as before has changed – perhaps forever. Going forward consumers will continue to be more careful on what they spend and make adjustments to their standard of living. However, the affluent consumers are not as affected and opportunities are available there as long as the value proposition is right with this buying group.
The frugality is not limited to just consumers. In a recent report, The Boston Consulting Group surveyed 434 firms in seven countries each with more than $1 billion in annual revenues to see where they saw themselves. More than two- thirds of the respondents said they expect lower profits in the future. The report also showed 87% stated that they felt consumers would be highly price sensitive. In response to these sentiments, many of these businesses were looking to make cost cutting initiatives in the new year.
Paralleling this story, Yahoo Sports reported that Pepsi will not advertise in this year’s Super Bowl on CBS. Likewise, FedEx also stated that it will not be advertising in the Super Bowl again in 2010. In previous years a 30 second spot had cost on average $3 million. The 2010 cost for the same ad has now dipped to as low as $2.5 million. The drop in advertising costs is not only limited to big networks. A look around shows that all media has dropped their prices in recent times. This opens up new opportunities for businesses who before could not afford to reach these audiences. Expect more deals to be made in all advertising channels.
Residential Real Estate
Existing home sales volumes are off 30% from the peak and have returned to 1998 levels. A key point to notice is sales volumes are being propped up by government interventions such as the tax credit, and aggressive FHA lending. But for the government’s intervention, there would be far fewer home buyers today and house prices would be falling even further. A major concern to the residential market will come this spring as more prime loans are expected to adjust coupled with an increase in unemployment numbers.
Commercial Real Estate
The year 2009 was a terrible one for commercial real estate. Devaluation and liquidity problems will continue to play out in 2010 especially as many loans come due. How will this play out? Nobody knows for sure. Nevertheless, there are some bright spots that are already emerging. Liquidity is returning to the market, and there is increased lending activity by life insurance companies. Also the market has witnessed the successful execution of the first securitizations in more than 18 months. Another bright spot is the incredible argains that are available across the country.
The Fight for Talent
Believe it or not, some businesses are finding it tough to hire the employees they need. Even as we are still in a recession, there are a range of companies that have not been able to fill some critical job openings. The positions in demand are in science, technology, health care, as well as machinists, welders and other highly skilled laborers. This problem will continue to increase not only in 2010 but beyond as many of the baby boom generation continue to retire and the supply of these highly skilled employees dwindle. One thing that is for sure is that our educational system will have to change to meet the shortfall of skilled employees. This will mean that at least in the short run, businesses may have to take the lead to train this new workforce.
In conclusion, we have briefly reviewed changes that will have an impact on how we live and what we do for a living. While the changes that are occurring may appear to be frightening at the onset, there also are hidden opportunities lying within. In some cases, it may mean the opportunity of a lifetime to buy or participate in markets that were previously unavailable. In other cases, it may mean a change in employment and lifestyles that may benefit us in ways we can only imagine.
One More Thing
This post was a bit longer than than normal and yet there was so much that I had to leave out due to time. For this reason we have scheduled a teleseminar where we will go into more details on each of these areas as well as highlight some other economic areas that could not be mentioned here. Let us know if you would be interested in being part of this teleseminar by just emailing us or calling out office. From all of us at Bay Area Mastermind we wish you a prosperous and Happy New Year.