Economic exuberance is all over the place of late. Economists are falling all over themselves predicting expansion this year at 2003 rates, expecting GDP to come in at an annual rate of 3.6% this quarter, up from 3.2% in Q4 of 2010. And, they put the risk of double-dipping back into another recession at 12%, way down from 22% last September.
Well, this is just marvelous news! And, I’m sure they’ve taken the continuing collapse of the housing market into account, as well as the looming (potential) defaults of our states and municipalities, and of course, horrendously increasing commodity prices. Oh! And, I believe the commercial real estate “can that’s been kicked down the road” is just waiting to kick all of us in the face. And, there’s going to be more virulent head winds once the government starts tackling the country’s fiscal mess.
So, as they used to say in radio-land: “Don’t touch that dial” thinking you are going to find Dr. Phil spewing bromides on how wonderful it is to be back to normal.
Why am I such a naysayer?
First of all, as I explain at length in my article: “On the Edge of Supply Side Deflation” (February issue of The Robin Report), I don’t care how strongly consumer demand comes roaring back, the world is still in deep over-capacity. Therefore, as commodity prices increase along with labor, shipping and distribution, retailers will simply not be able to increase consumer prices enough to cover those higher input costs, because somewhere in this over-stored and stuffed world, the consumer will find it cheaper.
The “loop” effect of this on business is that they will be forced to reduce their margins if they want to stay in the game. And, of course dear reader, since the guys and gals running these businesses are fairly bright, and if they’ve run out of cost-cutting options, they certainly are not going to invest in hiring more workers or building more capacity.
So, how does this story end in the momentary whimsical world of economic euphoria? Well, read my article: “What’s New? Everything and Nothing;” in the upcoming issue, due out next week, of The Robin Report. It will take you beyond the paradigm of traditional expectations on how this story ends, to the world-changing effects of the Internet and e-commerce. Essentially, you can throw your expectations out the window, and just hope to be in a better place, however, as yet indefinable.