Sauron
08-19-2007, 06:58 AM
....in the term paper for my graduate macroeconomics class. The end of the paper was the required forecast section. Red areas most interesting:
Forecast
Fiscal and Monetary Policy
Given the financial costs associated with the continued foreign policy problems that the Bush administration is having in Afghanistan and Iraq, the possibility of military action against Iran, and the impending 2008 national elections, it seems unlikely that US budgetary policy is going to chart of course towards total fiscal restraint in the next year or two. However, the Democrats will use the impending 2008 elections to force some small improvements in balancing government spending with compensatory budget cuts and/or tax increases. The budget deficit will improve, but only slightly. Monetary policy will remain stable for 2007, with no more than one Fed adjustment. For 2008, however, further adjustments will likely be needed.
Construction and Real Estate
With notable regional exceptions such as the Pacific Northwest, the domestic housing sector will continue to show softness during this period. Sales will be slower than in 2006, and final sale prices will be substantially off their highs in 2005 and early 2006. This will have impacts on related industries, such as home lending and refinancing, home repair, demand for freight, and consumer spending on household items. The domestic rental market will improve, as tightened credit standards catch up with would-be mortgage borrowers. Commercial real estate will remain stronger than its single-family counterpart.
Manufacturing
Manufacturing will continue to improve, especially in precision instruments, high technology and heavy machinery. However, Big 3 automakers will not recover this year, and will instead continue to suffer through 2007 and 2008. Affiliated industries and suppliers will likewise be hurt. In fact, we are already seeing this, parts maker Delphi recently reported huge losses, due to a slowdown in the industry and a buyout/early retirement offer to employees. The outlook for aircraft manufacturers, primarily Boeing, remains good.
Banking and Finance
Credit will tighten over the 2007-2008 timeframe. Consumer spending financed by credit – either in the form of credit cards of home equity lines of credit (HELOCs) – will be substantially cut back. The mortgage banking sector will encounter several shocks as a result of higher than expected default rates in the sub-prime lending arena. In point of fact, this has already started; the share values of several sub-prime lenders has dropped substantially, while Freddie Mac has just tightened its rules to avoid buying loans linked to high delinquencies and defaults. Commercial credit will remain generally good.
Agriculture and Natural Resources
Natural resources – extraction of minerals and mining - will remain strong, due to high oil prices and continued strong international demand for resources, especially steel. The agricultural sector will see some tightening due to corn output being siphoned off to become an input for alternative biofuel. Cycles of adverse weather will continue to play a role in making this sector unpredictable.
Services
The service sector, especially the professional and high-tech service sector, will remain strong. Growth in demand for retail services will slow, as consumer spending slacks off. Housing-related services will remain negatively impacted.
International Trade and Investment
Driven by Mideast instability and the continued US regional presence, energy prices will resume their upward climb. Combined with a taste for imports, global energy prices will worsen the US position on its Balance of Goods and Services. Improvements in exports will continue but will not be sufficient to offset US spending on imports. Continued deficit spending, combined with a slowing economy, will keep the dollar weak vs. other major currencies.
Consumer Spending and Tourism
Consumer spending will slow, as a result of tightening credit as well as weakness in housing-related job sector. The growth in retail spending, while still positive, will slow compared to 2006. Retail sales of certain items such as domestically produced low-MPG trucks and vehicles, will decline. Tourism will remain a bright spot in the economy.
Employment, Wages and Prices
Employment in high tech, skilled trades and services will continue to be strong. Wages will steadily rise for selected job areas, especially in the Northeast. Employers will continue to report shortages in certain occupations. Housing related employment will suffer throughout the period. Energy costs will continue to climb, the recent retreat being only a temporary reprieve. Trickle-down effects on related areas – cost of freight, commercial airlines, etc. will negatively affect those industries. Prices for other items, including food, will be moderate. Inflation will remain within manageable limits. Increases in wages and higher fuel costs will be offset by weakness in the housing industry, increased globalization and the prevalence of world wage rates for certain labor categories.
Forecast
Fiscal and Monetary Policy
Given the financial costs associated with the continued foreign policy problems that the Bush administration is having in Afghanistan and Iraq, the possibility of military action against Iran, and the impending 2008 national elections, it seems unlikely that US budgetary policy is going to chart of course towards total fiscal restraint in the next year or two. However, the Democrats will use the impending 2008 elections to force some small improvements in balancing government spending with compensatory budget cuts and/or tax increases. The budget deficit will improve, but only slightly. Monetary policy will remain stable for 2007, with no more than one Fed adjustment. For 2008, however, further adjustments will likely be needed.
Construction and Real Estate
With notable regional exceptions such as the Pacific Northwest, the domestic housing sector will continue to show softness during this period. Sales will be slower than in 2006, and final sale prices will be substantially off their highs in 2005 and early 2006. This will have impacts on related industries, such as home lending and refinancing, home repair, demand for freight, and consumer spending on household items. The domestic rental market will improve, as tightened credit standards catch up with would-be mortgage borrowers. Commercial real estate will remain stronger than its single-family counterpart.
Manufacturing
Manufacturing will continue to improve, especially in precision instruments, high technology and heavy machinery. However, Big 3 automakers will not recover this year, and will instead continue to suffer through 2007 and 2008. Affiliated industries and suppliers will likewise be hurt. In fact, we are already seeing this, parts maker Delphi recently reported huge losses, due to a slowdown in the industry and a buyout/early retirement offer to employees. The outlook for aircraft manufacturers, primarily Boeing, remains good.
Banking and Finance
Credit will tighten over the 2007-2008 timeframe. Consumer spending financed by credit – either in the form of credit cards of home equity lines of credit (HELOCs) – will be substantially cut back. The mortgage banking sector will encounter several shocks as a result of higher than expected default rates in the sub-prime lending arena. In point of fact, this has already started; the share values of several sub-prime lenders has dropped substantially, while Freddie Mac has just tightened its rules to avoid buying loans linked to high delinquencies and defaults. Commercial credit will remain generally good.
Agriculture and Natural Resources
Natural resources – extraction of minerals and mining - will remain strong, due to high oil prices and continued strong international demand for resources, especially steel. The agricultural sector will see some tightening due to corn output being siphoned off to become an input for alternative biofuel. Cycles of adverse weather will continue to play a role in making this sector unpredictable.
Services
The service sector, especially the professional and high-tech service sector, will remain strong. Growth in demand for retail services will slow, as consumer spending slacks off. Housing-related services will remain negatively impacted.
International Trade and Investment
Driven by Mideast instability and the continued US regional presence, energy prices will resume their upward climb. Combined with a taste for imports, global energy prices will worsen the US position on its Balance of Goods and Services. Improvements in exports will continue but will not be sufficient to offset US spending on imports. Continued deficit spending, combined with a slowing economy, will keep the dollar weak vs. other major currencies.
Consumer Spending and Tourism
Consumer spending will slow, as a result of tightening credit as well as weakness in housing-related job sector. The growth in retail spending, while still positive, will slow compared to 2006. Retail sales of certain items such as domestically produced low-MPG trucks and vehicles, will decline. Tourism will remain a bright spot in the economy.
Employment, Wages and Prices
Employment in high tech, skilled trades and services will continue to be strong. Wages will steadily rise for selected job areas, especially in the Northeast. Employers will continue to report shortages in certain occupations. Housing related employment will suffer throughout the period. Energy costs will continue to climb, the recent retreat being only a temporary reprieve. Trickle-down effects on related areas – cost of freight, commercial airlines, etc. will negatively affect those industries. Prices for other items, including food, will be moderate. Inflation will remain within manageable limits. Increases in wages and higher fuel costs will be offset by weakness in the housing industry, increased globalization and the prevalence of world wage rates for certain labor categories.