Forecast 2008: Economy Slows, Housing Woes
In looking at the year ahead, most observers see a challenging environment where healthy profits will require nimble management.
Phillip M. Perry (Dec/Jan 08)
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More From Less
to increase productivity, the time-honored cure for escalating labor
costs, have pretty much played themselves out over the past three
years. "Businesses have outsourced, moved offshore, cut back,
jettisoned unprofitable lines, and offered rebates," says Goldstein.
"And after all of that, they are still stuck with the unholy trio of
wage increases, higher costs for medical benefits, and expensive
retirement plans." When 2007 figures are finalized, productivity growth
is expected to come in at 1 percent, about even with the performance of
the previous year. Not much improvement is anticipated for 2008.
no element of labor costs has received more attention recently than the
perpetually aggravating increase in healthcare coverage. "Healthcare
costs are going up in astronomical figures," says Schackne, "and my
clients are asking, `How much of this premium can I subsidize?'
Employer contributions have gone from 100 percent down to 60 percent in
many cases, and employers are saying `I cannot absorb this anymore.'"
confluence of such forces has given many business owners second
thoughts about the solidity of the nation's economic underpinnings. The
Conference Board Measure of CEO Confidence, which had declined to 45 in
the second quarter of 2007, edged down to 44 in the third quarter (a
reading of more than 50 points reflects more positive than negative
Softening business confidence can be self-fulfilling
because of its negative impact on the capital investment decisions and
expansion plans that are so critical to a healthy economy. Indeed,
economists had expected capital investment to grow at a much stronger
pace than the 4.7 percent now anticipated when 2007 numbers are
tallied. Such growth has slowed dramatically from the 6.6 percent
recorded in 2006. Any rebound over the coming 12 months is expected to
be modest at best: Economy.com anticipates a 5.4 percent increase in
The current decline is troubling but should not be
overstated. "Business confidence is more moderate than low," says
Goldstein. "The modest decline in late 2007 was not enough to suggest
that business investment will fall further from its already slow pace.
But it's not likely to kick up any time soon either."
the decline of the dollar has brought new vigor to those companies
selling overseas. "In 2007, the dollar has been depreciating against
every currency," says Koropeckyj. The dollar is not expected to rebound
through the end of 2008. Exporters should benefit, according to
Koropeckyj. "Supposedly, U.S. manufactured goods will become more
attractive overseas, particularly with the major trading partners of
Europe and Canada."
owners begin the new year in a risky economic environment. Will the
nation fall into recession? Economy.com estimates the risk of such a
downturn in 2008 as 1 in 3. That's a reduction from the 40 percent
level that the organization maintained between the housing industry
debacle of last summer and the Federal Reserve's interest rate cut this
While the Fed may cut rates further, Koropeckyj
cautions against expecting too much from monetary policy, as the
recession risk is still elevated compared to the last few years. And
what else might trigger a recession? According to Koropeckyj, there's
little doubt that the most likely culprit would be a downturn in
consumer confidence and shopping patterns: "The big wild card is this:
Will consumers continue to support the economy?"