President of investment firm: Recovery to continue in 2011

Doug May
Doug May

Doug May expects economic recovery to gain traction during 2011 even as consumers and business owners regain confidence and stock prices rise.

While U.S. payrolls will grow, the gains won’t be enough to substantially pull down unemployment rates, however.

“Things are better. But if you’re looking for a job, you probably don’t feel it,” said May, president of May-Investments in Grand Junction.
May’s outlook for 2011 follows a year that turned out better than he initially anticipated.

May said he expected the economy to “muddle through” 2010 with only 1 percent growth in gross domestic product, the broad measure of goods and services produced in the country. GDP growth for 2010 likely will end up between  2 percent and 3 percent, he said. May also expected stock prices to move lower in 2010 when, in fact, they rose about 15 percent.

May was more accurate in his forecast for unemployment, which he pegged at 9.5 percent. The unemployment rate dropped four-tenths to 9.4 percent in December.

As for 2011, May expects GDP to grow at an annual rate of 3.5 percent and stock prices to move even higher.

While the U.S. economy historically has bounced back from downturns with more robust GDP growth of 5 percent to 7 percent, May called a 3.5 percent gain in GDP “pretty healthy” in an environment of slow growth.

That “new normal” will include a more normal level of consumer and business confidence, May said. “Some of the angst goes away.”

Rising confidence will in turn fuel increased consumer spending and more hiring.

Stock prices have climbed almost 90 percent from the latest bottom of the market, May said. “Clearly, that’s a pretty significant recovery.”

May expects prices to move even higher in 2011 as corporate earnings continue to improve. It’s less clear whether or not prices will move too far beyond a plateau in which the Dow Jones industrial average has ranged between 8,000 and 11,000. “I’m still a little skeptical about how far the market will run.”

The stocks of companies in the health care and technology sectors in particular should fare well, while the telecommunications sector likely won’t do as well, he said.

May expects job growth to continue in 2011, but at a slow pace. While payrolls could grow as much as 2 million, that won’t be enough to bring down the unemployment rate much beyond 8.5 percent.

Both short and long-term interest rates should move higher in 2011, May said, which could raise some concerns later in the year. But those rates are starting out at low levels, he added.

May bases his outlook in part on his own leading economic index, which forecasts growth. “The strength we’ve seen so far should be sustained through 2011 and maybe beyond.”

The index incorporates a range of measures, including consumer and industrial loans outstanding, consumer spending, corporate profits, exports, global semiconductor billings, new manufacturing orders, oil and natural gas drilling rig counts, manufacturing capacity, money supply and small business optimism.

All but two of those components remain strong, May said. While bank lending remains down, he expects that trend to change. He said he’s more concerned about downturns in exports and shipping activity.

Overall, though, May said his outlook for 2011 is mostly upbeat. “It’s a good year. That’s what I’m looking for.”