What good are economists anyway?

Yes, I borrowed that headline from BusinessWeek. But I did so with a reason. The BusinessWeek article I’m referring to focused on how wrong so many economists were recently by saying either a recession wouldn’t happen or, if it did, it would be short and mild. With that in mind, I thought I would point out one economist who called it right—Alan Beaulieu of the Institute for Tr...

By David Greenfield, Editorial Director June 1, 2009

Yes, I borrowed that headline from BusinessWeek . But I did so with a reason. The BusinessWeek article I’m referring to focused on how wrong so many economists were recently by saying either a recession wouldn’t happen or, if it did, it would be short and mild. With that in mind, I thought I would point out one economist who called it right—Alan Beaulieu of the Institute for Trend Research.

Speaking at the Control System Integrators Association (CSIA) conference this year, as he has now for the past three years, Beaulieu did not grandstand about his correct call on the timing and severity of the current recession during last year’s conference. Instead, he was more forward looking, as he typically is, explaining what is most likely to happen next.

Following are a few of the insights he provided:

  • Industrial production is at its lowest point in 30 years, but we still have not seen the bottom yet. Though it’s clear that the rate of decline is easing, we’re still six to eight months away from a recovery—and that recovery will be mild. However, 2011 will be a good year, economically speaking.

  • Look for oil prices to edge up later this year due to declining value of the U.S. dollar. In 2011, oil and energy prices will move up more aggressively due to increase in global demand.

  • Current deflationary pressures are coming to an end. Expect to see mild inflation in 2010, with more significant rates of inflation (6%-8%) in 2011, which will cause interest rates to rise.

  • Manufacturing industries that look to do particularly well over the next few years include cement, steel, construction machinery, and medical equipment.

Beaulieu also advised managers to view the opportunities available during this downturn. These opportunities include: grabbing market share from competitors who are faltering, investing in training for employees, renegotiating leases on property holdings, and taking time to understand what makes you a better competitor—“because you cannot afford to be viewed as a commodity,” he said.

He also advised managers against cutting pay across the board in order to save jobs. “Eighty percent of your workers will like it,” Beaulieu said, “but 20% will not. And those 20% are your top performers.” He said these workers will never forgive being told that they are of no more value to the company than the other employees. As a result, they will be more likely to leave as soon as things turn around. Beaulieu suggests assessing your employees through an A, B, C ranking strategy and removing your C players rather than imperiling the relationship with your top 20% through across-the-board pay cuts.

Beaulieu also predicted a depression occurring around 2030. But with such a far off timeline, I’ll wait another 10 years to see if his prediction remains the same before getting too concerned.

david.greenfield@reedbusiness.com

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