2011 Economy Predicted to Be Mixed, Says Analyst

February 7, 2011
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ROCKFORD, Ill. - It will be a mixed bag for the manufacturing community as the 2011 economy will not lead to “champagne cork-popping, but be more like wine box opening time,” forecasted Chris Kuehl, Ph.D., economic analyst for the Fabricators & Manufacturers Association, International (FMA).

“For manufacturers, much will depend on what sector they serve. For example, housing and commercial construction will remain weak, and many states are in a severe budget crisis. This does not bode well for those who sell to industries supported by construction. However, the fact that oil prices are rising and that economic growth is solid in the states that are engaged in the energy field make for good news to manufacturers that sell to the energy community,” stated Kuehl.

Kuehl offered these 10 predictions for 2011 that will impact both manufacturing and other sectors:

1. The Federal Reserve will keep interest rates where they are for most, if not all, of 2011. That means other rates will not likely rise much either.

2. The Fed will keep rates low because there will be little or no inflation to speak of - at least from the core rate perspective (real rates of inflation may be another story).

3. The unemployment rate will remain high - between 9 and 10.3 percent. It may actually worsen early in the year before getting a tiny bit better later.

4. Export levels will continue to increase as the dollar will remain weak. The dollar may gain a little against the euro simply due to the crisis in the eurozone.

5. The price of most industrial commodities, such as steel, copper, aluminum, nickel, and zinc, will rise, but only according to supply and demand. Unless there is some burst in economic growth, there will be nothing sudden.

6. The overall level of consumer sentiment will improve, but not fast and not consistently - unless and until the jobless rate improves.

7. Oil prices will rise to around $100 early in 2011 and will likely live in a range between $90 and $115.

8. The gap between the various states regarding their budget deficits will widen considerably, with those in the industrial Midwest taking the biggest hit (along with California). The states in the Southeast, Southwest, Rocky Mountain Region, and the Great Plains will benefit the most.

9. The housing market will finally stabilize, yet at low levels, and there will be very limited growth in residential and commercial building.

10. The U.S. economy as a whole will start to grow at between 2.6 percent and 3.2 percent - not great but well out of recession territory - and there will be no double dip in 2011.

“There are some parts of this forecast that will have an impact on the rest of it, and growth is at the top of that list,” Kuehl said. “The assumption that interest and inflation rates will stay low means that there is moderate and controlled growth. This also is a factor as far as the likelihood of a double dip. If the U.S. economy should suddenly start to surge and grow at a rate of 5 or 6 percent a quarter, the whole system shudders to keep up.

“There instantly will be bottlenecks across the board in many categories as most companies have been reducing capacity in order to accommodate the recession,” he explained. “If they have to gear up fast, there will be price hikes and even labor shortages that will add to the inflation threat. The core rate may be well under the 2 percent limit the Fed has suggested, but the real rate has already been moving upward due to the hikes in food and fuel prices that are not traditionally figured into the core rate.”

Publication date: 02/07/2011

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