Economic Forecasting - US economy in 2001

Information Outlook, March, 2001

Travel and lodging costs will continue to increase approximately 5%. The flight delays and congestion that made 2000 a nightmare for air travelers are likely to continue into 2001 and 2002. A number of factors converged in 2000 to make the year the worst on record for flight cancellations and delays. First, the booming economy brought a surge in the number of people traveling, straining the nation's aging air traffic control system. Labor skirmishes at three of the largest airlines led to work slowdowns, refusals to work overtime and lots of sick calls. Finally, there was unusually stormy weather nationwide. None of these circumstances will change significantly in 2001 or 2002. While a softer economy will brake the rate of increase in air traffic, more people than ever will be flying in the coming year. Steps to ease the congestion problems, such as new air traffic control technology and airport expansions, are at least two to three years away. Major contract disputes at most of the largest carriers will cont inue into 2001 and 2002 as well.

E-commerce will hurt some trade shows (those where floor sales are significant), but the overall trend in conferences is up--nearly 70% in the last five years. This trend is expected to continue as there is no substitute for face-to-face interaction and networking.

Although high-tech stocks that have been hammered recently, companies that are strongly profitable, category-leading firms will have profits that continue to grow robustly in the years ahead, even if at lower rates than during the past few years. Over the last half century, the large-capitalization stocks of the S&P 500 have given their investors an average annual total return of about 12% and there is no reason to believe they will do any less in the decades ahead. This record of equities has outperformed all other asset classes-bonds, cash, real estate, etc. The sharp market drops of the past few months actually increase the odds that stocks will get back on the plus side in 2001 and 2002. The markets seem to be assuming a recession in 2001, however, investment advisors believe it is more likely that the expansion will continue, but at a very slow pace--about 2.5% for the year. Corporate profits are expected to grow by a high single-digit figure--maybe 8% or 9%--and it would be reasonable for stock prices t o rise by this margin, roughly in step with corporate profits. Only once in the last half century has the S&P 500 declined for nearly two years, and that was in the severe recession of 1973-74, when soaring oil prices ignited high inflation and worldwide recession. Conditions then were a far cry from the mild economic slowdown that is likely next year. SLA's portfolio takes a balanced equity approach and we can expect returns in the 8-10% range.

Further technological advances and implementation of the virtual association will enable SLA to provide more products and services in the digital format, offering potential sources of additional revenue. However, the initial period of changing any delivery method causes uncertainty. Staff will continue to be faced with the challange of offering both digital and print formats in undetermined quantities as the initial demand may be somewhat vague.