Publication: TMA TrendWatch Forcast
Published Date: 1/3/2011
January 03, 2011
TMA members responding to the annual Trend Watch forecast see a brighter economic picture clouded by uncertainty from a commercial real estate industry paralyzed by too much debt and from a public sector where state and local governments are wrestling with reduced tax revenues and onerous pension obligations.
"I haven't seen any economist who predicted back in 2008 that there was going to be a U-turn and the economy was going to come roaring back," said Thomas S. Henderson, a bankruptcy attorney in Houston. "These things are like turning around an ocean liner."
Still, opinion was tied at 31% among those who think the worst of the economic crisis is over and those who expect to see improvement in 2011. Also tied, however, at just under 20% of responses each were those who suspect the worst is yet to come and those who don't expect to see substantial economic improvement until 2012.
An undercurrent of caution is revealed in responses identifying where businesses plan to spend cash reserves after notable gains in 2010. More than one-third of respondents (35%) said companies will engage in mergers and acquisitions, while 31% said those funds will go untouched. Only 2% of respondents think companies will increase personnel, while nearly three in 10 think businesses will increase productivity without increasing employees. Seven percent of respondents think companies will commit to capital spending.
"The panic - or debacle - that we were in during the Great Recession of 2009 and 2008 seems to be subsiding but people are very cautious,'' said William K. Lenhart, a certified turnaround professional (CTP) and partner with BDO Consulting in New York. "Businesses are looking at opportunistic buys; otherwise, they're just sitting on the sidelines."
The commercial real estate industry again led the list of industries most likely to face distress in 2011, based on 64% of responses. The residential real estate industry occupied second place with 40% of responses, while the retail outlook appeared less ominous; it garnered 26% of responses, down from 35% last year, and moved from second to third place.
Similar to the 2009 poll, most TMA members surveyed blamed incipient troubles for those industries on too much debt (70%) and lack of access to capital (49%). Economic conditions remained the primary external factor likely to trigger problems based on 84% of responses, an improvement from last year's 92%.
"People are generally just starting to feel better, but we are only inching forward," said Thomas E. Pabst, president of HYPERAMS, LLC, a Chicago-area asset disposition and distressed investing firm. "There doesn't seem to be any indication that improvement will rapidly accelerate in 2011."
The picture brightens for the automotive industry, which TMA members put at the top of the heap of distressed industries heading into 2009. With 37% of responses, it led this year's list of industries most likely to improve in 2011. Technology, the leader in that same category last year, ranked second place (32%) and energy (26%) third, among industries most likely to improve. More than five out of 10 respondents, in each case, said those industries would benefit from improvement in the economy and increased demand for products and services.
Responding to the survey within days of President Obama extending Bush-era tax breaks, TMA members, by a wide measure, suggested various forms of tax relief to loosen the grip of a near-10% unemployment rate. "The overriding view is that further governmental action is going to be essential to move corporations to the hiring of more people," Pabst said.