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A New Driver at the Wheel?

NatualGasIllustrationOutlook 2013 speakers say natural gas may fuel economic growth

The record-breaking number of attendees at this year’s Market Outlook Workshop, Aug. 9-10 in Chicago, were buoyed by relatively positive messages from all the speakers, who agreed the nation is in recovery.

What they had to say, as always, depended on which end-user industry they were there to represent, but one theme that came from many of the speakers is that growth in North America going forward may well be driven by the abundance and availability of natural gas, which speakers say is taking on an ever-expanding role in the energy mix.

Mark Peters of Oil and Gas Financial Journal called this situation the “golden age” of gas. He explained that if the U.S. is allowed to develop offshore resources and shale, and Canada develops the oil sands as it should, the U.S. could reach fundamental energy resource independence within 5 to 7 years. Reasonable energy prices should encourage additional U.S. manufacturing capacity and a resurgence in domestic manufacturing.

“Gas has great potential that we know how to use,” he said, “and it has the capability to impact everything in the U.S. in manufacturing and in the petrochemical industry.”

His remarks were backed up by several other speakers, including Mark Eramo, vice president of IHS, who added that abundance and low price are encouraging petrochemical producers to bring production back to the U.S.

But natural gas is just one driver. Many factors are affecting the current economic situation, including consumer and business attitudes.

As popular speaker Alan Beaulieu, Institute for Trend Research (ITR), said in his presentation, a good portion of the nation remains pessimistic even while all signs point to recovery.

“Everything that we want to happen is happening, but still we’re not happy,” he joked, “proving that we truly are American.” He warned attendees not to wait to see what will happen next, but to take advantage of current positives, including low lending rates, and begin to plan now for bumps down the road.


  • Natural gas is a game changer. If prices stay basically where they are, more natural gas power plants will be built, the petrochemical industry in North America may well be revitalized, and the economy as a whole stands to benefit.
  • Developing areas of the world will offer valve companies stronger markets. While the population of North America remains pretty constant, the population boom in developing countries combined with a shift toward urbanization in those developing nations will continue to have an impact on the price of commodities.
  • Caution is the norm. While the economy is not retracting at this point, it is also not rebounding as quickly or as definitively as people would like to see. Therefore, many manufacturers and end users are being cautious with spending and expansion plans. Growth will continue, but slowly.
  • China’s government will play a role. While China’s economy has not been growing as quickly as before, its government is working to stimulate growth, including starting big infrastructure projects. This could offset some of the negative effects of the economic troubles in the European Union.



Despite warnings by ITR’s economist Alan Beaulieu of economic troubles by about 2019, the overall feeling he left this year’s market outlook workshop attendees with is optimism. This was because, as he explained it, “The U.S. economy is going to continue to expand in the last half of 2012 and the first half of 2013,” and boom years are to come. Beaulieu stressed to attendees that even though 69% of the U.S. population currently has a pessimistic attitude, the country is in a real recovery. Business in the U.S. is hiring, and the job market is driving the economic expansion, he said. Retail sales are up and construction spending is improving, while credit card debt and delinquencies are down. “The problem is, we’re still comparing this [the current situation] to the bubble years before the recession,” he explained.

The realistic viewpoint is that the country will see a plateau in mid-2013 followed by a mild recession in 2014. However, “It will be nothing like what we just went through,” he said.

Meanwhile, however, he said too many companies are making the mistake of holding back.

“By holding onto money instead of investing, businesses don’t take the steps to drive efficiencies and get into new markets, meaning they will be out of position and ill-prepared for the relative boom years expected for 2015, 2016 and 2017,” he pointed out.

Beaulieu encouraged attendees to look forward for 10 years, figure out what people, training and other investments they will need to position themselves for growth and invest accordingly. “If you are qualified, borrow money,” he advised. “These are the cheapest interest rates you’re going to see for a long time. That investment can give you a good cash flow to bury competitors that can’t borrow,” he said.

However, he warned attendees to pay off that debt by 2019, when he said a major recession will hit. This recession does not have to be disastrous, however, and the country now has the past few years to use as an example.

“Think about what you would have done before the past recession if you’d known it was coming, and do that,” Beaulieu advised.

Beaulieu said that one of the most troublesome problems facing the U.S. economy in the long term may be health care spending.

“In the U.S. we spend much more per person and as a percentage of GDP [gross domestic product] than any other country,” he said.

vmfall12 outlook fig1This is worrisome because “in the next 30 years, 35 million of us will become senior citizens. By age 90, the cost of medical care will be $45,000 per person per year. This is a tax that will be borne by businesses and individuals.”

Although the overall short-term economic outlook is good, Beaulieu also reminded the crowd that things can go awry. For example, “Oil prices could break through $120 [per barrel], and that could slow things down,” he pointed out. Such a development would put a crunch on both consumers and businesses, which means “a bit of a downturn in the economy because higher oil prices are inflationary.”

As far as what has happened most recently, Beaulieu pointed out that manufacturers enjoyed a break from commodity prices as copper and other metals came down because China’s economy slowed. But, he said, this situation will stabilize this year, and prices will go up in 2013 because China is spending to stimulate its economy.

Beaulieu also warned manufacturers they must face the issue of paying more for qualified labor. “Job openings are at a four-year high, but employers can’t find the skilled people to meet the positions for which we want to hire,” he said.

The debt situation in the U.S. is not presenting an immediate crisis, Beaulieu pointed out, but there are also no immediate fixes. Meanwhile, the U.S. is still the largest economy on the planet so there will not be a world currency anytime soon. Even though the country has only 4.9% of the world’s population, the U.S. is still the nation the world looks to for currency guidance, although he does not expect the euro or the European Union to collapse.

With respect to Canada, Beaulieu reported that Canada’s economy will be very healthy over the next 10 years, and won’t suffer from recessions as much as the U.S., partly because it is reducing exposure to this nation. It has an immigration policy that works and has had no housing bubble burst like the one the U.S. experienced.

When asked during a question and answer session whether the election in November 2012 would have any impact on the economy in 2013, Beaulieu said probably not, partly because there will be no significant legislation in the first half of the year that would affect the last half of 2013. However, if a conservative government stepped in and started aggressively dismantling federal spending and healthcare reform, he predicted problems down the line if the dismantling is not done gradually. He also said that if taxes go up by, for example, 4% in 2013, it wouldn’t really affect spending. A cutback in federal spending could negatively impact 2014 but there would be no cliff—effects would be gradual.

FORECAST: The economy will be on a positive footing until at least the middle of 2013. Commodities will level out in 2012 and go back up slightly in 2013. The dollar will be slightly weaker and there will be a plateau in mid-2013 followed by a mild recession in 2014. The years 2015, 2016 and 2017 will be boom years, but 2019 will see a huge recession.

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