On September 25, 2009, noted economist Dr. Brian Fabbri of BNP PARIBAS presented his views on the United States economy to the French American Chamber of Commerce. Dr. Fabbri’s talk, Economic Recovery is Here, included an assessment of the current state of the U.S. economy and likely scenarios for recovery and growth. Over the past two months, I’ve compared his observations with developing events and have found his comments to be insightful and accurate. I thought that some of you might enjoy reading my notes from the call.

Key Observations

• The economy is significantly better now than a year ago. The recession has officially ended, but the recovery is weak. This will continue to cause problems for national and local governments.
• Businesses have regained the ability to finance their operations. When financial markets lost the ability to provide funds during the recession, the economy essentially stopped (as opposed to previous recessions, which resulted in economic slowdowns but not total shutdowns).
• The home mortgage crisis is showing signs of stabilizing in the United States but still needs to supported by the federal government.
• The commercial real estate market is in big trouble. Vacancy rates are rising and cash flow is falling. Unless this problem stabilizes quickly, we will likely see widespread financial problems in the commercial real estate sector in the next 12 to 18 months, which will adversely impact the national economy.
• The U.S. economy has shifted from liquidation to order filling. During the recession, businesses cut way back on manufacturing and filled what few orders they had by depleting inventory. When the economy improved, businesses did not have sufficient inventory to fill new orders and needed to increase manufacturing. Instead of simply filling new orders, most businesses elected to also replenish their depleted inventories. This has resulted in a quick spike in economic activity, which is driving the current recovery.
• The current efforts to replenish inventory should last into the early months of calendar year 2010. Once this flurry of activity has passed, something else (e.g., consumer spending) will need to take over as the primary engine driving the economy.

The Role of Consumers in the Economy

• In recent years, consumer spending has fueled the U.S. economy, accounting for more than 70 percent of the gross domestic product. Unfortunately, consumer spending has not returned to pre-recession levels and remains weak.
• Consumers have less wealth now than one year ago – home values are down, investments are down, wages are down and many people have lost their jobs. This causes consumers to spend less.
• Consumers are borrowing less money, which also reduces spending for items such as cars, trucks, houses, furniture, etc.

Hiring and Unemployment

• There are approximately 18 million unemployed workers in the United States at the present time. Dr. Fabbri forecasts that an additional one to two million workers will lose their jobs in the United States over the coming year.
• Large-scale job loss creates downward wage pressure, which lowers consumer confidence and consumer spending.
• The first significant hiring will probably not occur until late in calendar year 2010.

Economic Forecasts

• Most businesses will delay major capital investments in the short term. As a result, we are unlikely to see any significant expansion in the economy for the next two years.
• Unless consumer spending picks up significantly, it is likely that the U.S. economy will slump again in 2010.
• Another government stimulus package might be needed to encourage further economic growth.

Growth Projections for the Next 10 Years

• United States: average two percent annual growth over the next decade.
• Western Europe and Japan: average one percent annual growth over the next decade.
• Asia (excluding Japan and China): average four to five percent annual growth over the next decade.
• China: average nine percent annual growth over the next decade.

About the Author

Michael Bittner is an associate partner in the Boston, U.S.A. office of Environmental Resources Management (ERM) and editor of the EHS Journal. He has more than 20 years of experience in the EHS field, including 17 years of EHS consulting experience and four years as the corporate environmental manager for a U.S. Department of Defense contractor. Mr. Bittner specializes in global EHS solutions including:

• Compliance and management systems auditing.
• EHS management systems implementation and design.
• Sustainability solutions.
• Strategic planning.
• Mergers and acquisitions support.

Photograph: Luxurary by Jana Werner, Honolulu, Hawaii.