Volatility isn’t just affecting the stock market, it’s impacting everything.
Instability in Europe, slower Chinese growth, and declining oil prices are a just a few of the factors causing turbulence in the U.S. and global economy.
But there are a number of other trends and factors at work shaping our future. Understanding them can help a company reduce risks while assessing what’s ahead in 2015 and beyond. Here are a few to consider.
1. Consumer confidence
Although the unemployment rate continues to fall, registering 5.6 percent in December, many Americans don’t feel the benefits. One reason is that the unemployment figure doesn’t include those who have become frustrated and are no longer looking for work. Another reason is that average hourly earnings on private, non-farm payrolls slightly decreased in December.
But the bigger picture isn’t reassuring either. After adjusting for inflation, the median household income in 2013 was $51,939 — considerably lower than it was in 2007 before the recession began and about the same as was registered in 1995.
A third factor impacting confidence involves home ownership. The massive decline in housing values throughout the recession, which translated into a deterioration in the largest assets of many, reduced the wealth of millions of Americans.
Although the housing market has significantly improved, 5.3 million homeowners still owe more on their homes than they are worth and another 10 million borrowers have less than 20 percent equity, reports CoreLogic, a real estate research firm.
Due to continuing concerns about job stability and the economy, many consumers still are not confident about the future and in turn are spending less. And since consumer spending represents about 70 percent of gross domestic product, any decrease will continue to have a substantial impact on overall economic growth.
2. Corporate uncertainty
As U.S. industry struggles to regain momentum, many companies remain unsure of what’s next in terms of Washington policy and their corporate liabilities. As a result, many companies continue to invest more cautiously and resist hiring.
In some cases, CEOs have indicated they are trying to keep their number of employees under the potentially changing threshold mandated by the Affordable Care Act, known as Obamacare, so as not to be subject to certain costs.
And uncertainty, especially in terms of fiscal policy, can have serious consequences. Since tax policy is partly designed to encourage certain behaviors, its absence encourages others.
3. The skills deficit
The U.S. is experiencing a worsening skills shortage even though the unemployment rate remains elevated. And multiple factors are responsible.
Baby boomers continue to retire in droves. and they are taking their skills with them. In addition, after reaching their highest labor force participation rate of 60 percent in 1999, participation among women has declined, according to the U.S. Bureau of Labor Statistics.
Also, the U.S. Census Bureau says the mobility of adults aged 25 to 29 is at a 50-year low. Consequently, fewer young people have been able to relocate to seek or accept new jobs.
This is a real problem for American companies. To a large degree, the ability of companies to grow depends on finding talented employees who can think critically, solve complex analytical problems, learn new skills quickly, and implement increasingly sophisticated technologies.
4. Congressional gridlock
The inability of Congress and President Obama to pass legislation to implement necessary reforms or enhance competitiveness has resulted in little confidence that the government will do the right thing. And even after the 2014 midterm elections, gridlock is likely to continue.
The dysfunctional political system, with divisions as deep, if not deeper, than the period during the Vietnam War, has made compromise extremely difficult. If our government leaders continue in this manner, economic growth will continue to suffer.
5. Global growth
In late 2014, many international organizations downgraded economic growth projections for many countries and regions across the globe. Slower growing markets abroad will continue to curtail American exports, which will negatively impact economic growth at home.
However, over the longer term, the U.S. is positioned to excel. And this has everything to do with America’s innovative abilities and considerable strengths.
6. American strengths
Knowledge has become the primary source of competitive advantage for both companies and countries. When intellectual property is employed to drive innovation, and in turn, boost productivity, the results can be tremendous. In fact, they often include an increase in corporate profits, job creation, economic growth, wages and standards of living.
There are tremendous new innovations — like green industries, cloud storage, greater computing power, intelligent apps, hydraulic fracturing, 3D printing, advanced materials and robotics, energy storage and nanotechnology — that are in their early stages of development. And in the years ahead, they are likely to become significant drivers of U.S. economic growth. But that’s not all.
The American entrepreneurial spirit, capital markets, and acceptance of immigrants, combined with the brilliance of the U.S. Constitution, have created a system capable of overcoming great adversity. These factors, along with the understanding that checks and balances are to the political order what competition is to capitalism, have empowered American free market capitalism to create the greatest economic growth the world has ever seen.
At the core of capitalism’s brilliance is its ability to create incentives to produce solutions to problems and to distribute those solutions broadly. And in doing so, it empowers people to unleash their creativity.
There is no doubt that the U.S. will continue to experience economic difficulties in 2015 that are derived from the recent recession. But America’s inherent strengths and remarkable abilities will continue to help the economy overcome its problems, gain momentum and achieve greater economic growth well into the future.
For more information on John Manzella, visit http://www.speakernow.com/espeakers/150/John-Manzella.html