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Commentary: Businesses have brighter future

Judith McGee

The past couple of years have taken the wind out of many businesses – especially in construction. Many successful firms have suffered because of harsh economic conditions. People have dug in, hoarded cash and battened down the hatches of their business and personal lives. They now form long-term commitments cautiously.

Though the outlook for the broad economy is hopeful, the construction industry will continue to suffer from higher credit costs, mortgage defaults and a glut of real estate inventory. The Build America Bond program – initiated to help states raise money for public construction projects – was left out of the compromise tax plan. Financing may worsen. Sluggish employment growth in 2011 will pressure the construction industry.

According to Joel Naroff, president of Naroff Economic Advisors, Inc., the v-shaped recovery was “never possible given what caused the recession.” Past v-shaped rebounds were led by the housing and financial markets. Both have been drags on current economic recovery.

“In previous recoveries, the first quarter or two we would see increased housing activity,” Naroff said. “And typically banks emerged from recession ready to extend credit, which powered growth. Neither of those is happening now.”

James Glassman, managing director at JPMorgan Chase, says the shape of the recovery is “frustrating.” Both Glassman and Naroff see the current sluggish recovery as potentially temporary. Growth may be strong in the latter half of 2011. They point out new developments to a better economy that was predicted even a short time ago.

Glassman and Naroff differ greatly in their predictions. Naroff forecasts GDP growth ranging from 2 percent to 2.5 percent until mid 2011 and then a spike in the third and fourth quarter to as high as 4 percent. Naroff then sees the “new normal” rate of growth as 2.75 percent to 3 percent, but not driven by “bubbles.”

Glassman predicts 4 percent to 4.5 percent growth for the next decade. The Federal Reserve “will keep its foot on the gas” until unemployment is back to 4.5 percent to 5 percent.

Of course, both Naroff and Glassman are painting a far more positive picture than we’ve experienced from 2008 to 2010.

A new Congress is setting a new agenda, so it is difficult to make predictions. There is a mood for austerity and less government spending. As stimulus winds down, pressure for economic growth will increase early this year. Tax policy for a time may be friendlier to high-income individuals; corporations may even see a tax reduction. Businesses will be encouraged to put their high cash reserves to work in plants, equipment and manpower. It’s time for these businesses to plug capital into the economy.

To strengthen economic growth, new businesses must grow rapidly and employ people at good wages. Typical business practices will not fuel the economy fast enough to reduce unemployment and turn things around. It may take another decade for the 8.4 million lost jobs to be restored. According to The Kiplinger Letter, annual housing starts, average home prices and auto sales won’t regain their peaks until after 2020.

What we need now is some high-octane optimism. Find the positives in personal and business environments. It’s not just the facts, or even the economy that matters; it’s how events are interpreted. Refuse to accept negative input that can be debilitating. On dark days, believe that sunshine is coming soon. Optimism is energizing. As bad as the economy has been, better times seem to be ahead. Negative events are external and transient. Face this decade positively, one year at a time. The glass is half full, not half empty.


Judith McGee is the chairwoman and CEO of McGee Financial Strategies Inc., an independent registered investment adviser. She is a co-branch manager of, and offers securities through, Raymond James Financial Services Inc. in Portland. Contact her at 503-597-2222 or judith@mcgeenet.com.

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