"Kee" Points with Jim Kee, Ph.D.

“U.S. oil production grew more in 2012 than in any year since 1859.” So said the Wall Street Journal last week. Indeed, the Financial Times cited estimates by the International Energy Agency that the U.S. will be the biggest oil producer in the world by 2020, overtaking Russia (#1) and Saudi Arabia (#2). Also cited was BP’s latest energy outlook, which predicts U.S. self-sufficiency in energy by 2030. Echoing several speakers at our last energy conference, the FT piece noted that while there are bigger shale deposits in China than the U.S., the U.S. leads the world in critical areas such as exploration and production capacity; infrastructure (pipelines, railroads, and oil services); and entrepreneurial capital and technical expertise. That’s a lot of optimism, (particularly for Texas!), but we feel some optimism is certainly warranted.

Importantly, it looks like a national debt bill could be passed this week that defuses the near-term potential debt crisis. Last week the U.S. House passed an extension of the debt ceiling to May 18th, and the U.S. Senate is expected to follow suit in the next few days (WSJ). If so this comes much sooner than expected, and it is being hailed by some analysts (like Hong Kong-based GaveKal) as “the most bullish political event since 2008.” I think it follows a pattern of a reality unfolding that is much less extreme and apocalyptic than has been painted by the press: The Eurozone hasn’t dissolved, China hasn’t experienced a hard landing, we didn’t go over the fiscal cliff, and Republicans aren’t “holding the market hostage” to debate the debt ceiling. I could go on….President Obama hasn’t nationalized the banks or the auto industry, etc., but I think you get the point.

Looking at the overall economic news last week, the World Bank lowered its global growth forecast to 2.4 percent for 2013, down from June’s 3 percent estimate. The International Monetary Fund (IMF), on the other hand, expects 3.5 percent growth, a 0.1 percentage point slower than October’s projection of 3.6 percent (I think that’s kind of silly). Most of the more proprietary estimates expect a little stronger growth in 2013 than 2012 (which is consistent with the IMF). Good, but not great, and that’s what I expect as well.

The same general outlook holds for the U.S.: A little bit better growth in 2013 than 2012. Consensus is for around 2.3 percent growth for 2013 versus approximately 2.0 percent for 2012 (we don’t even get the preliminary estimate for 2012 4th quarter GDP until next Wednesday). That’s consistent with what I have laid out in our webcast and our client updates, although I feel that there is a good chance that we could see 2013 come in above 2.5 percent. However, the near-term period - from last quarter 2012 through the first quarter 2013 - will be a mess. Consensus estimates are that 4th quarter 2012 GDP will come in around 1.3 percent,
then increase to 1.5 percent, 2 percent, 2.5 percent, and then 3 percent by the fourth quarter of this year (2013). There has been so much going on over the past three months, things such as income shifting prior to the fiscal cliff and yet also peaking and then declining uncertainty (who will be president, who will control congress, etc.), that I have little conviction beyond the consensus for last quarter and this quarter’s numbers, except that they will be low but positive.