Gazelle Index Summary of 2012 Economic Outlook (more optimistic than others)
• Expect to see much more hiring and economic growth in 2012
• Industry hiring will be strongest in Information Tech, Management and Admin, Wholesale, Health and Education, and Construction
• Hiring will decrease in transportation and warehousing
• Regionally, hiring increases will be the strongest in the South, followed by the Midwest and the Northeast. Hiring will decline in the West
• Expect GDP to increase to 3% in 1st Qt. 2012 and reach 3.5% by the end of the 2nd Qt. 2012
• Expect the unemployment rate to decrease to 7.8% or lower by the end of the 2nd Qt. 2012
Why will this occur?
• Growth has picked up over the last several months
• US Growth has not been derailed by Euro debt crisis
• Corporations are investing and still have enormous cash balances
• Consumers are beginning to spend more freely
• Housing starts and building permits are increasing
• The European Central Bank is attempting to manage the debt crisis
• Euro zone growth is no longer determining factor in the health of the US economy
• However, Congressional action or inaction will be important
Detailed 2010 Economic Outlook:
Expect much stronger hiring and economic growth in 2012. The 4th Quarter Gazelle Index survey of small business future hiring indicates that twice as many CEOs will be hiring workers than laying them off as we enter 2012. The survey results are consistent with recent trends in economic activity that show the economy is gradually gaining momentum. Significantly, it is withstanding the adverse effects of the European debt crisis.
The industries where significant hiring will occur are as follows- ranked in order of the percentage of CEOs who will increase employment in 2012:
1. Information Technology
2. Management and Administrative Services
3. Wholesale Trade
4. Health Care and Education
5. Construction
Industries that will experience very small increases in hiring include leisure and accommodations, recreation, food services, and finance, insurance and real estate. In fact, transportation and warehousing are the only industries in which CEOs expect to decrease hiring more than they plan to increase it in 2012.
Regionally, hiring increases will be the strongest in the South, followed by the Midwest and then the Northeast. In the West, the results suggest that CEOs will reduce hiring more than they will be increasing it. The Gazelle Index is a national random survey of 631 CEOs, who operate minority-owned, women-owned and nonminority-owned small businesses. The survey was designed by EuQuant, an economic research company, and administered in November 2011. Each company included in the survey employed 10 to 100 workers, and the results have a margin of error of + or -5%.
Based on the Gazelle Index survey research, we are optimistic about economic activity and hiring over the coming months. In fact, our positive expectations exceed those of most forecasts. During the first quarter 2012, expect GDP to increase to at least 3% and reach 3.5% by the end of the second quarter 2012. Thereafter, it will grow more moderately and remain in the low three percentage range. Accompanying this more vigorous growth, expect to see the unemployment rate decrease to 8% by the end of the second quarter 2012. This is a much more optimistic forecast than is provided by the economist. For example, the Congressional Budget Office is expecting a GDP growth of 2.7% and unemployment to remain at 8.8% by the end of the second quarter, 2012. Morgan Stanley’s forecast is even more pessimistic. It expects US growth of 2%, and Wells Fargo is expecting the same. One of the most pessimistic forecasts is that of PIMCO, which expects US growth in 2012 to range between 0% and 1%.
In contrast, based on the results of the Gazelle Index survey and recent economic developments, expect growth to accelerate and unemployment to decrease significantly for following reasons:
1. Corporate have enormous funds to invest: As a percent of GDP, corporate profits are at record rates since the early 80s, and they continue to significantly each quarter. In 2011, corporate non-residential fixed investment exceeded 8%, and they still have 25% more cash on their balance sheets than normal. As the economic uncertainty in the environment settles and consumers spend more, corporations will gradually accelerate their investment. This will cause a significant boon to economic activity and small businesses will be the immediate beneficiaries. Small businesses and new start ups are the job creating engine in the economy, but their health and vitality are closely tied to opportunities in corporate supply chains. As corporations invest more, small business revenue will increase and so will their hiring.
2. Consumers are beginning to spend more freely. Until recently, consumers were saving disposable income at record rates, close to 5%. Recently, they have reduced this high rate of saving and are now spending more. Holiday season online spending is 15% above where it was a year ago according to the National Retail Federation, retail spending is expected to rise by 2.8%, bringing total spending to $465 billion. As consumers spend more, and corporations increase their investment; the net result will be more hiring and greater stability in household income. Ultimately, this will feed into the housing sector and help stabilize it.
3. Housing starts and building permits are increasing. Housing starts increased 9% over last month and 15% over last year. Building permits are tracking housing starts closely. While the absolute number is still far below trend, positive movement in this sector can have a tremendous linkage effect on economic activities. Construction jobs suffered the most during the last recession, and they have been the slowest to recover. Of the 1.9 million construction workers who became jobless, only 25% have not been re-employed. This unemployment gap is bigger than that which exists in the manufacturing sector where only 14% of the 2 million workers who are unemployed are still out of a job. Therefore, any progress in the housing sector is good news to the economy. The faster the sector recovers; the quicker will the labor-market move towards normality.
4. The European Central Bank is attempting to manage the debt crisis. The euro zone sovereign debt crisis is still a black cloud hovering over the world’s economy. Recently, the European Central Bank made $640 billion available to over 500 local euro zone banks. Those funds are a short-term fixed that will help prevent immediate bankruptcies while the member countries search for a long-term solution. A resolution of this crisis is important to US consumers because it is estimated that Bank of America, J.P. Morgan and Citigroup each has $15 billion or more invested in the five countries that are most likely to default: Greece, Italy, Ireland, Portugal and Spain. As this crisis is moderated, the amount that US banks have to set aside in reserves can be reduced, which will make more loans available to US consumers and small businesses.
5. Euro zone growth i is not a determining factor in the health of the US economy. The euro zone economy will slow down significantly during 2012 and likely go into a recession. The slower growth is in large part due to the austerity measures being imposed on euro zone member countries. The austerity measures will be reinforced by the joint movement towards a fiscal agreement that will prevent individual members from running up huge deficits. The containment of the euro zone crisis puts a drag on the world economic activity. However, while euro growth is important, it is not a determining factor in the health of the US economy. As far the US is concerned, healthy economies in Canada, Mexico, China and Japan can offset any drag imposed on US growth by Europe. Furthermore, China now accounts for 16% of world output and that percentage is growing fast. It is only slightly behind that of the US share at 18.6%. Additionally, China is expected to grow at 9.5% in 2012. While the 15 euro zone countries combined account for 17.9%, they are expected to grow at only 1.5%.
6. Congressional action or inaction will be important. The big unknown is a non-economic factor that can significantly influence growth. Specifically, government action or inaction. If Congress moves in a reasonable way to establish an approach to balancing the budget, growth in the US can accelerate rapidly. This policy must be one that “walks on three legs.” Specifically, to balance the budget we must have a combination of actions that stimulate economic growth, generate more government revenue through taxes, and reduce government spending in ways that do not damage the health and social fabric of the country. To do otherwise would be to repeat the bad lessons that euro zone countries are now learning.
What’s up Next”? Over the coming week expect the following to be published
• 2012 Outlook for Small Businesses
• 2012 Outlook for Minority-owned Businesses
• 2012 Outlook for Women-owned Businesses
• 2012 Outlook for Black-owned Businesses
• 2012 Outlook for Hispanic/Latino-owned Businesses
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