Surviving the "Perfect Storm"
By IBI Magazine
Two economists and a technology "futurist" outlined very different scenarios for the downturn that is plaguing the US economy. One economist sees a recovery in six months, while the other doesn't see a return to normal levels of boat sales until 2010. The speakers were part of the annual Marine Design Resource Alliance (MDRA) conference, held in Sea Island, Georgia. About 25 executives from US boatbuilders, as well as two dozen others from marine accessories manufacturers and financial institutions, attended the conference. Dr. Barry Asmus, a noted US economist, opened the conference, describing a "perfect storm" of economic conditions that includes high oil prices, low consumer confidence, a credit crunch resulting from the downturn in the housing market, and a general recession. "Nobody could've predicted these confluence of events," said Asmus. "But if you can manage the next six months, this storm will pass." Asmus explained certain macro-economic trends, and put the current downturn into historical perspective. "We have had 25 years of great, smooth sailing in the US," he said. "We have had only 16 months of recession out of 300 months. To put it into perspective, there were 67 months of recession in the previous 25 years." Asmus said that the US population and demographic growth is "in good shape" compared to much of the world, including Western Europe, Japan and Russia, which will all experience a "population implosion" in the next decade. "That means they're not replacing themselves so it will be tougher on their economies," he said. "Our demographics looks good for the next ten years. We're aging some, but nothing like the aging of Europe and Japan." Asmus said that the US would need to move to a "consumer-driven" health care system and relieve employers from any health care responsibilities. Asmus told the group, who exhibited some skepticism, that $110 per barrel oil prices would be a long-term solution for the US economy's dependence on oil. "When oil is $50 or less, nothing can compete with it," he said. "But when it's this high, other fuel sources become competitive. We have over a million entrepreneurs trying to break the key to our oil dependence. In the future, you will still need petroleum to build boats, but not to run the boats. We are going to leave the petroleum age." Asmus also said that "taxes matter," referring to lowering corporate taxes in order to reward financial activity. "The US had five poor decades in a row — the 1930s through the 1970s — where the average tax rate was 70 per cent for those years," he said. "We've had 25 good years since Ronald Reagan lowered it to 28 per cent. The good news is that the world is now starting to experience a Reagan supply-side revolution." Asmus also said that American-style entrepreneurial capitalism would eventually outpace "big government" capitalism in countries like Germany, Japan and China. "Over time, the Chinese model will not work," he said. "We have seen virtually no growth in countries like Germany or Japan for the last 18 years. But the US economy has expanded from US$5 trillion in 1990 to US$13 trillion today." Asmus said that globalization has also been a boon for the US and rest of the world, and predicted that the current weak dollar would subside when European economies begin to lower interest rates. "We will then see the dollar begin to turn around," he said. "I have no problem with it right now because the export market is saving our bacon. But there will not always be a weak dollar and you have to plan for that." Anika Khan, an economist at Wachovia Bank, took a closer, more somber look at the co-relation between the boating industry and general economy. She said that she doesn't expect boat sales to return to "normal" levels until 2010. Khan said that her bank saw a decline of .3 per cent in US GDP in the first quarter, and expected to see consumer spending decline further in the second quarter. "We expect to see a bit of a boost of 2.4 per cent in the third quarter because of the stimulus package," she said. "We see most of the damage happening in the first half of the year." But Khan said that while the recession may be technically finished by year's end, she doesn't expect boat sales to rebound until 2010. "Next year will be a recovery stage and during the recovery consumer spending is very subdued," she said. "We won't see a pick up in boat sales until 2010 back to normal levels." The recovery will be even farther out for major boating states like Florida and California, Khan added, because of the rampant speculation in the housing markets. "We are seeing a vast decline in the value of the homes in Florida," she said. "People are even leaving these places. That could put a recovery out to 2010 or even 2011." Dan Burrus, author of Technotrends and a consultant to many Fortune 500 companies, didn't address the economy but he did speak to the group about upcoming demographic and technical trends. Burrus said that the retirement of the Baby Boomers around the world should prompt boat builders to design boats for seniors in what could be a highly significant consumer market. "Typically, people over 55 have about 80 per cent of the wealth of the nation," said Burrus. "And these people could live 20 years longer than the previous generation." He said that design changes to boats and trailers would make it easier to keep people "addicted" to boating. Burrus also encouraged manufacturers to embrace the latest technology, and use more tech-savvy youths to help transform their companies. "For the first time ever, we will have four generations in the workforce together at the same time," he said. "You need to combine their talents, and use the younger generation of people who see technology in a different way. They are also attracted to different designs, and could help you appeal to new audiences." He said that viral marketing campaigns are good examples of ways to reach new markets in cost-effective ways. Burrus named different technology drivers for the next 10 years, including networking, dematerialisation, virtualisation, increased product intelligence, interactivity, mobility, globalisation, and the convergence of different product types. "We will also have many types of integration, including data integration, partner integration, system integration and business processes integration," he said. "Technological change is going to accelerate far faster than what you or your customers are expecting. There is an absolute perfect storm coming our way, and it will create many opportunities." Burrus said that online tools like 3D-web browsers and streaming media rooms could allow builders to set up virtual boat shows. "It could be a year-round boat show where a consumer goes online and 'walks around' the boat, lifting up the engine hatch and looking at full details of the engine in high definition," he said. "You really need to be thinking about it right now, so you're on the leading edge and not the bleeding edge."
(23 April 2008)
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