Many of us listened to President Obama’s State of the Union speech last night. The overwhelming desire was to hear what Government was going to do to get the economy started again. This seems to indicate a certain loss of confidence in the possibility or probability of a classic cyclic rebound based on pent up demand. Still, while Congress dithers, our population grows, wages slowly increase and inflation eats away at the sting of too much debt, whether held by individuals, corporation or government.

It is important not to get all tied up in what the Government might do and lose sight of the normal cyclic functioning of the economy…and the role now unforeseen innovation plays in boosting the overall level of economic activity.  In the near term, we have at least six cyclic factors that point to better times ahead.

1. Pent up housing demand. Each year we create one million new households and each year at least one million new housing units fall into obsolescence. For the last two years we have only built about one million new housing units…that is a short fall of three million homes, condos or apartments.
2. Pent up demand for autos. In the last two years we have scrapped about 26 million vehicles and sold about 21 million.
3. Retail and wholesale inventories are very very slim and any small surge in consumer spending will stimulate inventory restocking, and should give retailers confidence to raise the level of their shelf stock.
4. Increased disposable income…year over year growing at about 4%.
5. Under-investment in capital equipment by corporate America…simply older equipment is wearing out. Further, increased demand for innovation and value by consumers will also force new or more evolved products, which require new equipment.
6. Inflation. As it emerges, asset values including housing and commercial real estate is likely to rise. The median housing price has actually increased nationally for six straight months. Commercial real estate is likely bottoming right now.

It would be nice to know exactly when the pent up demand is going to be released. The catalyst that may trigger the realization of this demand may be the US Government will be hiring of 500,000 census workers kick-starts the US economy releasing demographically based pent up housing demand. Incidentally, housing usually leads most lasting economic recoveries.

Down the road a bit, what might propel the next wave of growth? In this case, one needs to think “out of the box.”

Possibility One

New drugs and technology begin to bring down the cost of healthcare.

Possibility Two

New innovations allow us to reduce our consumption of energy without limiting the growth in the economy.

Possibility Three

Strangely, China collapses as a result of overbuilding and expanding their productive capacity beyond the ability of the world to absorb it…energy and materials prices collapse…prices on consumer goods plummet benefiting the world’s consumers…the Yuan collapses and the Dollar soars.

Possibility Four

New robotics technology brings manufacturing jobs back to the United States.

The economy will probably move before the Government takes passes any material stimulus. Waiting for or depending on Government action may leave investors waiting on the sidelines.