2014, Return to the Basic Economic Power Industries

Over the last ten years, we have seen some very unusual economic trends; however, current trends are ALL moving in a positive direction and have been for the last two years. Clearly, the economy has made a correction, driven for the most part, by the resurgence to the basic industries which strengthened this county from the beginning of the industrial revolution: the Housing industry, the oil and gas sector, and a new love affair with American engineered and built automobiles. That’s right; the American economy has righted itself and on the backbone of what made America a great economic powerhouse in the first place.

Ready or not, here is some food for thought!

When you think back in history, what are some of the names that from the beginning of the industrial revolution that come to mind. The pioneers, the inventors, the business leaders and the industries of lore are making a resounding comeback in America. Many people think crude was discovered in Texas, it was actually discovered in western Pennsylvania in 1859 and set off an oil rush similar the 1849 Gold Rush.

John D. Rockefeller was the driver of the time as he bought up refineries, railroads, pipelines, and oilfields helping build America into a super power in the oil industry. Henry Ford revolutionized the automobile business by inventing the process of using interchangeable parts on an assembly line. Today, Ford enjoys the worldwide recognition as being the world leader in innovation and quality products. Of the top 14 selling models domestic auto models, Ford Motor Company, has 4 of the best selling models, GMC has three. Compared to the imported brands, Toyota has two models in the top fourteen, Honda has three, Chrysler has one, and Nissan has one.

Oil and Gas Industry – The economy will continue to grow in 2014 driven by the domestic strength of the oil and gas industry. Saudi Arabia is quickly running out of crude oil, it is estimated that their exports will decline dramatically in the next few years, and could be out of oil in 10 years. Fortunately, there are substantial North American reserves, and domestic oil production will continue grow by double digits.

WTI (West Texas Intermediate) crude oil prices have been strong for the last three years and will remain strong into the future. WTI, the benchmark for crude oil is well within the anticipated price range and will continue to hover around the $85 to $105 per barrel. With oil prices at this level, it will promote record levels of domestic oil production. The Permian Basin in West Texas will quickly become the largest producing field in North America, not far behind is the Bakken Shale along with vast reserves in Alaska, given this 3 punch blow, America has vast un-tapped fossil fuels, including natural gas. Expect companies to continue to prosper in the oil and gas business as domestic drilling continues along with drilling innovation.

Think about this, John D. Rockefeller at one time controlled 90% of the oil in this country leading to the passage of the Sherman Antitrust Act. In this case, of the Standard Oil Company v. United States suit, the Supreme Court ordered Standard Oil to be split up into competing companies that would become Exxon, Mobil, and Chevron. That’s the power of oil and the way it will shape our future economy.

The Housing industry – We all know that when the housing industry is strong as goes our country. The Housing market is still a long way of where it was before the crash, but guess what? We will never see the levels from 2005 where we built almost 2 million single family and multi-family units that year. Those were unhealthy and fabricated levels. Remember, the total housing starts submitted by the government each month is the total number of combined single-family and multi-family units combined. A healthy economy in America is associated with housing starts somewhere between 1 million and 1.3 million annual units. Mortgage rates will continue to hover around the 4.0 to 4.8 percent and building costs will continue to be affordable. The housing industry (1) drives almost 20% of the [1]GDP in America, one in five jobs are associated with housing, when it is strong, the economy is strong.

You might be asking what “unhealthy and fabricated levels” mean as mentioned above? Remember, the housing boom from 1995 to 2007 was the result of too many sub-prime loans being granted to individuals who could not afford them which artificially inflated the numbers thus driving up foreclosures. Foreclosed upon homes have flushed through the economy and builder inventories are at manageable levels. It is predicted that 1.1 million to 1.3 million starts is a nice equilibrium to supply and demand curves. The builders, the bankers, and the finance companies have all learned that when you glut or boost up a market the way we did from 2001 to 2005, you are going to pay in the long-term. Remember, it was Clinton who signed the Community Reinvestment Act into law in 1993 which the driving force behind the sub-prime lending debacle.

Also, while we are on the subject of presidential and economic policies, Obama will have nothing to do with this economic recovery referenced in this article, quite the contrary, he continues to undermine this economic engine which has chosen to ignore his ridiculous economic policy.

Retail Sales and Auto Domestic Auto Sales – You can look for retail sales to accelerate steadily to 5% annual growth and auto sales to 7.5% annual growth. A stronger economy will always have a positive effect on these two important, consumer sentiment driven, super powers. It’s a simple formula, when consumers are making more money, they spend more money in stores and on cars.

Here is the intangible side of Auto Sales that we don’t always recognize. As we mentioned earlier, America is re-emerging as a super power in auto making. Who would have thought that Ford Motor Company would have emerged as the world leader in manufacture, in quality, innovation, engineering and design? Ford always had good quality, however, fifteen years ago, their product line was stale and on the verge of extinction. Today, their line is innovative, it is well designed, it is leading edge, and for thirty plus years, they have had the #1 selling vehicle in the F-Series. GM needs to look across the horizon and take note what Ford has done, they are starting to get it by redesigning their line, and Cadillac has done a fine job of finding a niche. Overall, GM has a way to go, but they are starting to get it. Bottom line, America is now viewed, once again, as the world leader in the automobile industry through innovation and engineering.

Unemployment Rate – The Federal Reserve has predicted that the unemployment rate will drop to as low as 6.3%, more realistically is a 6.4%. First or all, we have a new Fed Chairman taking the reins on February 1, second, this new chairman is hugely qualified to replace Bernacke, and third, this new chairman is not going to undermine the policies that have driven the economy for the instituted by Greenspan who was the Master.

You might be wondering or asking yourself: 1) if all these economic planets are going to align, 2) we are going to see a strong housing market, 3) we are going to see a strong oil and gas sector, 4) retail sales are going be slightly ahead of last year and at relatively healthy levels, then why is unemployment only going to modestly improve? First of all, we still have Obama in the White House; he is the master of economic prevention.

Obama and his policies are anti-capitalistic, he has proven this time and again. Our recovery has resulted on the heels and the resiliency of the entrepreneur, small business, American ingenuity, he nor the members of his staff will ever take responsibility for economic growth during his presidency. On the flip side will continue to suffer from the hangover and side-effects of Obamacare. We all know that Obamacare will never produce the number of enrollees as was planned, plain and simple. Obamacare will fall far short, with respect to the number of taxpayers needed to make the plan economically feasible. At the end of the day, it will cost more money to fund this plan than is coming in, thus driving up the associated costs. This is typical liberal political policy, lets develop a really good policy, lets pass that policy, then later realize, we did not budget for it properly. This will have a lingering effect and will stifle the unemployment numbers.

Conclusion – The economy will expand in 2014 on the backbone of the housing industry, the oil and gas industry, auto innovation and technology. We have all the reason to believe that this trend will continue well into the future. US gross domestic product (GDP) will most likely be anemic at 1.9%, primarily because we have such poor leaders in Washington. The fiscal drag is over and we are going to see key industries strengthening.


Post time: 06-20-2017