Which Direction Is the US Economy Headed?

Planning for the year ahead is going to require a very strong stomach for all players in the US economy, including the high-tech sector, which has become very tightly woven into the larger consumer, manufacturing, and services markets over the last 10 years.

The equity market continued to stomp upward, with the major indices steadily increasing through the last month of 2010 and continuing in the first week of this year on a steady diet of positive reports indicating the global economy remains resilient. In the US, stronger signs are emerging that the economy is rebounding steadily, and even the dollar has managed to firm up against all other international currencies despite rising debt obligations.

In the high-tech industry, forecasts generally call for single- to double-digit sales increases for all segments, including semiconductor, manufacturing, and overall electronic equipment sales. The annual Consumer Electronics Show is chock-full this week with numerous forward-looking gadgets from major manufacturers jostling with each other for the bragging rights to the coolest electronic products. One would be forgiven for thinking the industry is in the middle of its strongest sales expansion ever.

Yet ominous signs keep popping up each time a celebratory cry gurgles up from a corner of the industry. Energy costs are going up: Crude oil prices have soared in the last three months and continue to push closer to $100 per barrel — a certain sign the market sees demand growth continuing in the near future but also a nasty price hike that could hurt shipping and transportation and crimp consumer spending.

Technology companies must contend also with the sharp rise in other commodity prices in recent months. Copper and gold prices have shot up to new levels although the increases have been tempered in the last week as investors embarked upon a profit-taking stampede on concerns the strengthening US dollar could hurt commodities.

Higher commodity costs are worrisome for electronic companies, but this is a longer-term problem as most manufacturers have learned to hedge prices for shorter-term deliveries. Yet, China's planned curb on the export of rare earth metals is another worrying supply chain concern the industry must address with alternate procurement strategies.

Perhaps the more serious problem facing the electronics industry, as well as the larger economy in the US, is the uncertainty surrounding the country's high unemployment rate. On Friday, January 7, the US Department of Labor announced the latest monthly employment data showing employers added 103,000 non-farm positions in December, much lower than the 150,000 to 190,000 many economists were expecting. Yet, the unemployment rate dropped to 9.4 percent from 9.7 percent, with much of the decline a result of adjustment of data from the prior months.

The small payroll increase disappointed many, but the lower unemployment figure thrilled the market, leaving stocks wobbly, unsure which direction to head. Economists believe a minimum of 150,000 jobs would have to be added each month to make a more serious dent on unemployment. And even the Labor Dept. concurs.

“While we have seen steady job growth in the past year, faster job growth is needed in 2011 to help bring down the unemployment rate and put those Americans who lost jobs during the recession back to work,” said Hilda Solis, Secretary of Labor, in a statement.

That's an understatement. Consumers gave the economy a much needed lift during the last recession, proving resilient even as corporations, though stuffed with cash, further slashed payroll and tamped down on expenses, including high-tech equipment purchases. Many people were expecting corporations to both boost technology equipment spending and increase payroll in the last months of 2010. That didn't happen.

Wrapping up 2010 with less-than-expected hiring will deliver a rude shock to the economy, and high-tech companies will feel the jolt. How do you plan for the future with so much uncertainty still clouding up the outlook?

23 comments on “Which Direction Is the US Economy Headed?

  1. eemom
    January 7, 2011

    This seems to be the million dollar question..How do you plan for the future among all the uncertaintly?  The unemployment numbers and the lack of payroll increases is a sign that corporations themselves are not certain of the market data and are hedging their bets.  One can't blame them really after the downturn in the market over the past couple of years.

    For the ecnomy to recover on a longterm basis, corporations have to stop hoarding cash and start investing again.  Once they invest, either in their current employees or by adding more employees (or hopefully both), their confidence will reflect in the market and eventually in consumer spending. 



  2. itguyphil
    January 7, 2011

    Also, I think once consumer confidence increases, corporations cannot benefit. Once we start to believe that our situations are not as grave (reltively speaking), then we will believe in our spending power and actually… spend. This will help to get the big boys feeling good about their market prospects. It's like a cycle that all starts with the 'you and me's of the world'.

  3. AnalyzeThis
    January 7, 2011

    Since the recession hit, many of us have spent a lot of time trying to figure out what the future holds. Attempting to predict when (or if) things will improve.

    This is a very tough issue to discuss due to the wide variety of opinions out there. Some experts claim we're due for tremendous growth. Some say we're due for an even more dramatic crash. I've just started to tune all that out.

    At this point, I have given up trying to play fortune teller.

    My approach has been to not assume to worst. After all, the worst possible scenario is that some natural disaster wipes out most (or all) of human society. Yet, I wouldn't say that I'd classify myself as “cautiously optimistic.”

    So I have been planning on the assumption that things will largely say the same, not getting much better, but not getting much worse. I feel that a safe, low-risk approach is appropriate at this time. I'm not looking to gamble on the potential of a large swing.

  4. t.alex
    January 8, 2011

    Who knows after the CES show, consumer confidence and electronics company confidence will be gaining mometum to drive the economy back.

  5. Hardcore
    January 8, 2011

    Unfortunately the efficiency and general manufacturing of the USA has little to do with it, ultimately Americas future will be dictated by their deficit.

    Once China starts to loose interest in handling American Dept and becomes more interested in their own currency performance on the international market they will start to 'dump' the US debt they are currently supporting. Europe is in no state to be taking up that slack. Overall the future is looking bleak on a number of fronts.

    As a point of interest what exactly is a 'maximum' tax rate, because as costs for government continue to rise and the Gravy train continues to get longer, taxes must be forced to increase (consider Europe where tax is now edging up towards 80% , that's a minimum of 50%+20%vat), and i guess that VAT will soon be at 25% or 30% because it is the only way they can all support the massive expenditure of the European Union.

    The same in the USA, it is a path of continual increase as Governments get larger and become more inefficient at running themselves, at some point in the future we will be back to serfdom and enforced bondage at birth it is the only logical conclusion.


  6. SP
    January 9, 2011

    Very good question. While there was news that economy is getting strong and recession seems to be over but in reality there are lesser jobs in high tech market, recruitment is very slow and pay hike is almost nothing. Sometpimes I feel investing in precious metals like gold or buying estates of rubber or peper is a good idea but then the fact of being an engineer provokes to get back in regular project deliveries. But yes the uncertainty is really high what will happen in future?

  7. Ariella
    January 9, 2011

    I agree with your point of view, DennisQ. I've heard many declare that the recession is over, or that we've turned a corner, or that the job situation is looking up.  Yet unemployment remains high and the salaries on offer are low.  Many jobs are labeled “entry level” to justify that level of salary when the skill level demanded would, more accurately, be termed mid to senior level.  So I am also not completely optimistic about the future.

  8. Anna Young
    January 9, 2011

    I was recently following the BBC news when I noted on its ticker information that President Obama had forecasted that the American economy will be strong in 2011. While I welcome this news however I was still concerned about the high US and UK's unemployment.

    I agree with eemon that the corporation themselves are the key to a visible certainty in the markets or economy as a whole. Here in the UK, small businesses are already crying foul over the banks failure to assist with loans to help stabilise their business and reduce the need for staff redundancies. Yet these banks have been busy increasing their profit margins.

    Consumer spending comes in the form of employment and increased payroll but right now I see uncertainty as corporations will rather hoard cash through reduction in staff levels, a norm we all know as restructuring.


  9. Parser
    January 9, 2011

    Little bit of optimism is needed to plan for the future. To many variables but one thing is for sure the economy is slowly marching up. Investors have to break their fear and start investing. Yes, there will be some fallout, but where are high risks there are possible higher earnings. Playing safe is what Wall Street is doing being burned a few years ago. There is somewhere here a threshold to be crossed and suddenly every investor will be on the market making a large boom. The threshold is set by global economy and the biggest player is China then US, Germany and others. 

  10. Mydesign
    January 10, 2011

         Everybody including the seller, buyer and producer got suffered very much during the recession period. Now this is the post recession period and everybody is trying to play in much safer way. Big brands had started further investment and expansion in a smaller way, while the medium and small scale industries are keeping away from the scene and playing the role of a market watcher. That means everybody learned lessons from the past. good!!

          But one thing is dam sure, requirements are hot in market and whoever plays their card in safer way can capture the market. That is the requirement for products and supply is not at par with the pre recession period, so surly there are green rooms for more demand and supply. This internal will help the smooth flow of economy. During the recession period, we had seen that, much of the economy is concentrated to certain hands and again the reverse flow has to happen in order to strengthen the economy. Since everybody is playing their cards in the safest way, it may take time to reflect this growth in market.

  11. bolaji ojo
    January 10, 2011

    Anna, I believe companies are loosening their purse strings slowly and hesitantly. Part of the reason for this is the same uncertainty you mentioned. They want to be more certain of the strength of the ongoing recovery before raising payroll. Some companies are more daring, more assured or more forward-thinking than others but generally most companies are adopting a wait-to-see attitude. Let's hope they are not too slow out of the starting gate.

  12. bolaji ojo
    January 10, 2011

    Parser, Wall Street rewards both the daring — when they pull it off — and the cautious — when they don't lose out on opportunities. Finding the right balance is what management at high-tech companies must do. It's not always easy, however, hence the inclination to wait until for further evidence of the recovery.

  13. Hawk
    January 10, 2011

    Ariella, I don't disagree with your sentiment but I detect a hint from it that companies should do more to help push the economy up. That's a fine idea and perhaps they should but they will get pulverized on Wall Street. Companies have no further obligations than boosting value for shareholders. It's not a jointly shared future. Capitalism dictates everyone for himself except when the commune is as a whole under threat — say, in a situation of war — and even then many companies still focus on making money rather than on helping “the war effort.” Haliburton did it while soldiers were dying in Iraq and it even billed the government excessively.

    In order for the economy to revive strongly enough to boost the “optimism” level of everyone, we would all have to watch out for numero uno (you) and in doing so watch out for the economy together. It's a sad reality but that's how evolution formed us. Right? I would love to hear your take on this because that's how high-tech companies too are operating. See the nasty competition developing in the tablet market, for instance. So many to choose from it's clear the weakest will drop off eventually and only the strongest will survive.

  14. Anna Young
    January 10, 2011

    Hawk, It may seem unnecessary for companies to watch out for the “common good” and focus instead on creating shareholder value alone but there may also be a ton of folly in ignoring the larger needs of a society. Companies do not exist in a vacuum; they exist because other segments of the society jointly create the environment in which they can pursue their corporate goals. A company can do good (for its business) by doing good in its society.

    Companies should, naturally, be cautious about hiring but oftentimes, an investment in a business is also an investment in a society. Higher employment raises consumer confidence, boosts consumption, which in turn lead to stronger employment. The cycle is good for businesses and the community. Is that message going out?

  15. Ariella
    January 10, 2011

    I agree with Anna.  I understand the principles of capitalism.  However, the profit motive does not necessarily mean that one completely ignores the rest of society.  Certainly, highly successful companies regularly donate to philanthropic causes to try to demonstrate that they are not ruthless robber barons and do care about those around them.  That may all be lip service for the sake of public relations, but it still shows that a company does not function in a vacuum.

  16. eemom
    January 10, 2011

    I agree with Ariella and Anna.  Let's not forget that if companies invest in their society, they will most likely reap the benefit of their investments.  If they want sales to go up, who is going to buy their products if consumers continue to be gun shy about spending and about the “recovering economy?”

  17. bolaji ojo
    January 10, 2011

    Hi Ariella, Eemom, Great and valid points. I want to throw in some additional stuff though and I would appreciate your opinion. If we say that companies have obligations to their society, which segment of the entire society are we referring to, the local or the international?

    By transferring jobs overseas, companies are gutting jobs in headquarter countries. Should they be held accountable for the rise in unemployment in home countries or better still, do they have obligations to make sure people in headquarter countries are also gainfully employed?

    I ask because many of the companies that are retrenching or refusing to hire in North America are still hiring or have open positions in other parts of the globe. Do they have an obligation to move these jobs to other parts of the globe as part of their efforts to renew their societies?

  18. Ariella
    January 10, 2011

    That's quite a question, Bolaji.  The answer may depend on one's view of utility vs. ethical considerations.  As for legality, the companies usually know how to skirt the law, or at least get the lawyers to make sure they are technical compliance.  I've heard that many companies have taken money that was supposed to keep them in business in order to maintain US jobs, but then they shift operations overseas without any compunctions.  Even on a local level, companies sometimes don't give back to the places that offer them tax breaks specifically to keep up employment in the area.  

    Several years ago, for example, New York extended major tax breaks to Goldman Sachs to try to keep the offices in New York. see While it accepted those tax breaks, it set up offices in Jersey City, even moving employees who live in New York to work over there.  As a  result, New York lost out on some of the income tax from those employees.  The losses increased even more to both states when large numbers of employees were let go and had to collect unemployment insurance from the state where they were officially employed.

  19. JLS
    January 11, 2011

    If there isn't more investment in the U.S. and jobs continue to go off shore, there will a smaller base of “customers” for all the goods that are being made.  I can guarantee a Chinese peasant who gets a job in the new iPhone factory isn't ging to turn around and use his new-found wealth to buy some high-tech gizmo that American companies are selling.  American workers are the ones who primarily buy their products, and if they aren't working, they aren't buying!

  20. bolaji ojo
    January 11, 2011

    I couldn't have said it better. People who keep talking about how and why outsourcing is good for consumers generally don't seem to get it that you need to make money to spend money. The government does not have the means to support a large unemployed labor force. Local jobs are needed and in my opnion, these should include manufacturing jobs too. Our goal should be to find ways to make ourselves competitive in manufacturing and not just believe it's impossible and simply keep shifting jobs overseas. An economy of unemployed is an economy in distress.

  21. J-TX
    January 12, 2011

    Sideways, it's headed sideways.  And I think that's a good thing, for now, so we don't artificially inflate our markets and set ourselves up for another huge crash.

    The larger question is WHY?  Why is there still high unemployment?   WHy do the corporations not invest their hoarded cash?  Why are we not seeing greater job growth, commensurate with the expansion of GDP?

    The simple answer is, over the last 20 years, consumer confidence has shriveled to a raisin from a once plump and juicy grape.  And this is not confidence in the “economy”. It is confidence in the US Government, whose fiscal, military and social policies have damaged our ability to continue growth.   Excessive debt is the biggest factor.  Think about it in micro terms:  If a household is severely in debt, not only are they going to stop expanding, but they will contract, and be unable to maintain current levels of services (Entitlements) unless they iuncur even greater debt.  And eventually they are going to ask more from members of the household in the way of contributions, either by no longer getting allowance or having a smaller Christmas (TAXES).  Or askking a relative to takre care of a kid or two for a “while”.  (Outsourcing Jobs)

    That's why the stimulus packages were such utter failures.  You can't spend your way out of debt.  You eventually have to start cutting somewhere.  Didn't make Clinton popular, but he was the only President to balance a budget since the '50's.

    Until we as a people take back our government and overhaul the Tax Code, Entitlements, and the sheer SIZE of our government, we will never again be able to generate the positive expectations necessary to fuel long-term sustained growth.

  22. Anand
    January 13, 2011


       I slightly disagree with your statement that “Chinese peasant who gets a job in the new iPhone factory isn't ging to turn around”.But there is another angle to look at it

    1)  Recall the recent visit of Obama to India. President Barack Obama's India visit has been successful in creating thousands of jobs for Americans. Reality is India and China are seen as big market by US

    2) Samsung,Nokia phones are sold like hot cakes. I agree no body buys IPHONE here but  for every iphone sold in US, 10 smart phones are sold in India and China. what I am stressing here is Volume is the key and not the price.



  23. t.alex
    January 16, 2011

    Tom, you have a great point. “Playing the card safe” is a buzzword now. Companies might still be cautious and take steady approach for growing, and that's why the jobless rate is still lingering around. 

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