Phil Castle, The Business Times
Doug May’s forecast for economic and financial conditions in 2013 looks remarkably similar to predictions that turned out to be near spot on for 2012.
May expects the United States economy to continue to expand modestly even as stock prices advance and unemployment retreats.
Following a period some characterized as a new normal, he anticipates something else. “I think we’re going to move toward a regular normal,” said May, president and chief investment officer of May-Investments, a Grand Junction wealth management and investment advisory firm.
While economic and financial conditions aren’t likely to reflect robust growth, neither is the U.S. headed back toward recession. “I anticipate what I think will be a good year,” May said.
May both reviewed his predictions for 2012 and detailed his forecast for 2013 during a luncheon presentation at the Clarion Inn.
May accurately predicted a year ago that gross domestic product, the broad measure of goods and services produced in the country, would grow 2 percent during 2012. “I think we’re going to be pretty close to nailing that on the head,” he said.
May predicted the U.S. unemployment rate would fall to 7.5 percent in 2012. That rate stood at 7.8 percent in December.
Given statements from the Federal Reserve that its key short-term interest rate would remain near 0, it wasn’t difficult to predict short-term rates will remain near historic lows, he said.
May also expected the stock market to move higher during 2012, which it did.
He was less prescient in his predictions for long-term interest rates and the performance of various industry sectors in the stock market.
While May forecast long-term interest rates to move higher, they didn’t.
He also expected the stocks of companies in the technology sector to perform especially well, while the stocks of telecommunication firms would fare poorly. While tech stocks rose, telecommunication stocks rose even more.
Looking ahead to the coming year, May anticipates increases in consumer spending and business investments to spur a 2.5 percent increase in GDP.
There’s some uncertainty, though, associated with a recent retreat in an index of 10 leading indicators May follows. “This needs to turn around,” he said.
That index is split evenly between strengthening and weakening indicators, he said. Corporate profits, new factory orders, retail sales, semiconductor sales and the small business optimism all have improved, he said. But bank lending, drilling activity, industrial capacity, growth in the money supply and shipping activity have declined.
The trend isn’t yet dire, however, he added. “I don’t think we’re about to head into a recession.”
May expects the U.S. jobless rate to continue to edge down in 2013, perhaps as far as 7.2 percent, although government regulations constitute an impediment to further hiring.
While short-term interest rates will remain low, May said he still expects long-term rates to move higher as part of more normal conditions. For now, demand for bonds continues to outpace supply, he said.
Stock prices should continue to trend upward in 2013 even as valuations improve and market volatility decreases, May said.
Tech stocks should perform well, while May said he continues to see less potential in telecommunication stocks.