Glen Hiemstra Quarterly Forecast Q4 2008: Sailing Rough Waters
Sailing Rough Waters
By Glen Hiemstra, October 1, 2008
The Future of Oil
In the 3rd Quarter forecast I suggested that oil, then at $147 a barrel would decline to $110 or lower through the election season, then begin rising again toward $200 by year’s end.
Obviously the first part of this forecast has come to pass, as oil fell below $100 and has for two weeks fluctuated around that price. The economic crisis which has come to a head in this time period has added to downward pressure on oil prices, as traders now anticipate a deeper economic recession in 2009 than they had before.
Global economic activity may depress oil prices more than previously anticipated, but the underlying dynamics of oil remain. Oil consumption occurs at about four times the rate of new oil discovery, and despite a release of off-shore oil areas this imbalance is going to remain. It is literally impossible to out-drill the oil shortage problem in a world where population grows and economic activity increases in the emerging world.
Prediction: Oil will fluctuate between $90 and $110 until the election. If the U.S. Congress comes up with an acceptable rescue or bail-out plan for the financial crisis, then oil will rise a bit more. Not until the election will it become clear to traders what likely economic performance will be going forward. Assuming some confidence in the global economy, I continue to predict that we will see a climb in oil price to the neighborhood of $200.
The Future of the U.S. Workforce
In the month of September 2008 the U.S. Census Bureau released two new reports; one on the future of the workforce and its growing diversity, and a second about the surprising decline in immigration into the U.S.
• Minorities, now one-third the U.S. population, are expected to become the majority in 2042.
• The Hispanic population is projected to nearly triple by 2050. Nearly one in three U.S. residents will be Latino
• The Asian share of the nation’s population is expected to rise from 5.1 percent to 9.2 percent.
• The working-age population by 2050 is projected to be more than 30 percent Hispanic, 15 percent Black, and 9.6 percent Asian, combining for a total workforce that will be more than 50 percent minority.
The U.S. has added about one million new immigrants per year since 1990, accounting for most of the population growth and leading to a current immigrant population of 38 million, the highest ever; however, the Census Bureau has reported a reversal of trend. In 2007 immigration fell to a half-million, down from 1.8 million in 2006. One year does not indicate a counter-trend, but it is noteworthy. One explanation given is a higher new citizenship fee, which was raised from $400 to $675. A more likely explanation: the economic downturn in the U.S., along with several years of widely publicized and vehement anti-immigrant rhetoric which has decreased the attraction of the U.S. to potential immigrants.
Prediction: Two developments are likely. If the decline in immigration becomes a trend, then in just a few years we will be actively encouraging new immigration as we face a worker shortage. Second, not mentioned in the statistics above is the tremendous growth in the aging population. Already nearly a quarter of residents over age 65 remain in the paid labor force. This will grow. The state of Washington forecasts a 600 percent increase in workers over age 55 in the coming two decades, while those age 16-54 will increase only 16 percent. An economic downturn which hits the retired will push even more seniors back to work. It will be essential that workplaces and communities plan for this development.
The Future of the Economy
Current efforts to rescue or bail out the Wall Street financing system will eventually lead to some kind of action. However, the impact will fall short of hopes and expectations, because the underlying dynamic which has driven this crisis will not be addressed except over a long period of time.
In the past two decades two economic activities have come to dominate the U.S economy – construction, primarily the great suburban build-out, and creative financing. One can argue that manufacturing employment did not disappear but rather morphed into construction and what we have been building are suburbs. As this happened, a mismatch between what is built and what consumers can afford became more and more pronounced. In 1970 the average home was about 1400 square feet. Now it is 2500 square feet, but that masks the deeper reality of development after development of 3500-5000 square foot homes, priced, depending on region of the country, from $450,000 to $1,200,000. This occurred when household income was flat or declining. The financing of creative mortgages and the derivatives that they became was all designed to enable people who could not afford what was being built to seem to be able to afford the homes available.
The core problem is that the home construction industry has not, and still is not building what the market can afford or will want in the future. When you take into account the aging of the population, one study has suggested that the nation faces a surplus of 22 million large homes by 2025. This is a big problem.
Prediction: The next 18-24 months will see a recession because of the financial crisis, compounded by the deeper global energy shortage. It is important that a new administration not hunker down but leverage this recession to fundamentally re-order national priorities toward investments in the future, around new housing and community development policies that support smaller homes and walkable, transit oriented development, green energy technologies of the future, and workforce development to compete globally. There will be pressure not to invest in anything new, but the key will be the re-prioritization of limited capital.
Glen Hiemstra is a futurist speaker, author, consultant, blogger, internet video host and Founder of Futurist.com. To arrange for a speech contact Futurist.com.