As a Controller of $500 million credit union in California, I often look forward to the budgeting season. The pageantry of large volume fluctuations, adjusting offering rates to maximize the returns, just makes me want to sing Christmas carols the entire fourth quarter. The thought of putting together each departmental budget into an Excel spreadsheet, building up to the climax of an organization budget, makes me so happy, I can barely hold down my excitement and I remain giggling alone in my office, like a child who peeked under the Christmas tree already. Pulling balance sheet and income statements together, calculating ratios, creating scenarios and resulting impacts to the bottom line, keeps my blood pumping. I have these feeling in down years, and up years. I look forward to the future, keeping the horizon in sight, whether its a downward or upward trajectory. This year however, I find myself looking forward, the next 15 months, and there is no trajectory, no horizon. I find myself at odds with 50% of the economists today, however, there are 50% that agree with me. If you know an Accountant, you know that we like to be right, and settling for 50% is not good enough, but, better information is not forthcoming.
So we must forecast using our own knowledge of the situation, and we must come to grips that half of us will be right and half…wrong. Next year we will see either a plethora of public companies exceed expectations by a grand percentage, or miss by slim margins. We will either see an increased number of banks and credit unions fail, or they will build the necessary net worth to make it another year. With the establishment of the Consumer Bureau of Financial Protection, new regulations and policies will have a larger impact than ever before. In fact, for anyone wanting to stay up to date with these regulations, I encourage you to sign up for email alerts at http://www.consumerfinance.gov/at the bottom of the page. These new regulations can boost consumer confidence and increase the pace of the recovery, or it can add on so many regulations that it suffocates business and consumer confidence falls, promoting another recession.
Due to my optimistic nature, and glowing personality, I tend to see the positive signs in the economy. Businesses have increased their purchasing of inventory and equipment, which is a key component to the gross domestic product. Exports have also grown over the past year, mostly because the US dollar has decreased in value, making US products cheaper to buy in the international markets. Job growth has been positive, just lighter than we want. Even in August, when the jobs report indicted net growth was zero, the consumer side still increased 17,000, offset by the reduction of government jobs by 17,000. We should see more job growth in 2012 due to increase in production from the pent up demand the consumer has. Consumers have been living with the same old cars, televisions, and appliances for the past 3 years, there is a limit the consumer will live with an inferior product. The consumer spending will increase business revenue, which should spark an uptick in consumer confidence, which will strengthen the overall market. Consumer confidence is key to increasing the job numbers in the manufacturing plants and retail and service industries. As more jobs are created, and confidence grows, homes will start to sell at a faster pace again. The sand states should see a large recovery once this happens, since they are still in the dumps and have not seen the rebound seen in the middle of the country. The real estate market will be the last item to correct, along with the unemployment rate. The unemployment rate should decrease in 2012, from 9.1% to the low 8%. This will put 1 million people of more back to work. If this happens, 2013 should see that “V” shaped recovery that economists were hoping for in 2011. The consumer has turned to saving rather than spending, however, I do not believe it’s entirely the consumer fault. The financial services industry tightened their underwriting standards so much that most consumers couldn’t qualify for a loan if they wanted. So, once the purse strings open up, and they will with the increased scrutiny on revenue, the consumer will get loans, confidence will grow and the economy will heal faster.
In conclusion, the recovery should take hold in 2012, but we will have to wait until 2013 before we see the bounce back in all the major categories, including housing. I’ll be forecasting a small recovery in 2012, so that leaves 49.8% of you will do the same. So join me in booking a summer 2012 vacation at the spot of your choice, and we will either be there by ourselves, wishing we had our deposit back, or there will be so many people there we will want our deposit back, but we will be smiling when we think it. Good luck and happy budgeting!!