2015 Might Be a Banner Year
Oceanside, CA - The yuletide season can be a time for reflection and a time to put the events of the past year in proper perspective, to help prepare for next year. In that spirit, this month we will focus on how the U.S. economy has progressed in 2014 and where we think it will end up by year-end. Then next month, we will reveal what to expect in 2015 for the economy and its impact on the trade show industry.
The broadest measure of economic performance is seen in a country’s real gross domestic product (GDP) growth that is recorded quarterly.
“The year started with a big thud as extreme winter storms curtailed business throughout the nation,” said Frank Chow, chief economist for Trade Show Executive Media Group. “This weather-induced drag on the economy appears in many other measures for the First Quarter.” He pointed out that in Q2, there was a strong rebound, which continued into Q3. The solid 3.5% growth was fueled by a surge in exports and the biggest jump in defense spending in five years. The latest Philadelphia Federal Reserve's quarterly survey of economists expects GDP to slow in Q4 to 2.7%; but other economists from NABE and the National Association of Realtors predict a more tepid growth around 2%.
Overall, Chow predicts that growth in 2014 will be modest. “However, the trend since the First Quarter augurs a strengthening economic base through the Third Quarter,” he said. The main driver of the slower Fourth Quarter forecast is a faltering global picture, Chow noted. “Europe teeters on the brink of recession and Japan slipped into recession in the Third Quarter. China continues to slow as it transitions from an export-driven economy into one based on domestic investment and spending. All are major trade partners with the U.S.,” Chow said. However, he believes that the holiday season may surprise if consumer spending comes roaring back due to plunging gas prices and an improving employment picture.
Chow said there is no doubt that U.S. employment will end 2014 at its strongest level since the recovery:
- Payroll jobs have increased by over 200,000 for nine straight months since January.
- Unemployment rate improved from 6.6% in January to 5.8% in October — the lowest rate in six years.
- The Labor Department's Employment Cost Index shows wages are accelerating from a Q1 gain of 0.3% to 0.6% in Q2 and 0.8% in Q3. Total compensation and hours worked show a similar trend.
- Job openings and the hiring rate have surged this year.
- Competition for positions has fallen to less than two unemployed per opening — a point at which economists believes should force companies to significantly raise wages soon.
Another promising trend in 2014 has been corporate profits, said Chow. “Buoyed by a resurgence in the manufacturing, health care and energy sectors, corporate profits have exceeded expectations,” he pointed out. After a dismal First Quarter increase of 1.3%, S&P 500 earnings jumped 8.4% in Q2, and Q3 is projected at 7.9%. However,earnings are estimated to slow at 4.7% for Q4 as the worsening global economy will put a damper on exports, he said.
“The major areas of concern are business investment, consumer spending, and housing activity,” Chow said. “The pace of growth of all three slipped in the Q3.” Robust business spending has been missing during this anemic five-year-old recovery, he pointed out. “The current 5% rise estimated for 2014 is nowhere close to the double-digit gains from prior recoveries,” Chow said.
Most economists believe consumers remain cautious about spending because of weak wage growth since the Great Recession. However, wages may be at an inflection point, said Chow. Wages rose 0.8% in Q3, the best quarterly gain since 2008 and that followed a solid 0.6% increase in Q2. For the year, wages are up just 2.1%, but have been rising since the end of Q1. “It’s clear the transition to faster wage growth has begun,” argued Bernard Baumohl, chief global economist of The Economic Outlook Group. Retail sales, which account for about one-third of consumer spending, show a more optimistic picture. The National Retail Federation has forecast that sales in November and December will rise 4.1%, compared with 2013. That would be the biggest gain in three years, Chow pointed out.
The U.S. housing market is clawing back after it imploded during the 2007-2009 recession. It suffered a setback last year when interest rates spiked, but rates have been falling in 2014. Housing starts have been up and down this year, but are on a small upward trend as single-family homes starts, the largest part of the market, rose for a second straight month in October to their highest level in nearly a year. Also, permits jumped 4.8% in October - the second straight month of gains and the highest since June 2008. However, existing and new homes sales, along with new mortgage applications, remain very anemic and are far below pre-recession levels, Chow noted.
The economy has translated into a solid year for trade shows. The October TSE Dashboard results hint at a possible acceleration going into Q4. Coupled with September, it corresponds to strengthening GDP growth and rising corporate profits in Q3. “If corporate executives would start shifting their estimated $2 trillion in cash away from stock buy-backs or dividends and into capital investment or product innovation, then marketing budgets would increase, with some of that spilling over to trade shows,” said Chow. Despite the short-term business decision-making, the exhibition industry has performed better than the general economy, which implies trade shows remain important to corporate strategy. “If companies begin to make more significant long-term investments, then 2015 could be a banner year,” said Chow.
Frank and I and the entire Trade Show Executive team wishes you and yours a Merry Christmas and Happy Hanukkah!
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