A Look Ahead

If you made it through 2007, you'll make it through 2008--or so say economic forecasters asked to describe the near-term environment for entrepreneurs.
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This story appears in the January 2008 issue of Entrepreneur. Subscribe »

Last year's themes of real estate woe, falling interest rates, tighter credit and rising oil prices are likely to continue to play out for much, if not most, of this year.

Don't look for housing to return to prosperity before midyear, if even then. "There's not going to be a real estate bounce-back," says Gerald Celente, director of Trends Research Institute, a futurist study group. Celente says it may be a good time to buy in some markets, but prices won't soon return to those found a couple of years ago.

Diane Swonk, chief economist of Mesirow Financial, sits on the Congressional Budget Office's panel of economic advisors and offers this insight about housing: "That's a sector where it's going to continue to be very difficult and probably not improve much over the next six months, or even a year," she says, noting that commercial construction should remain relatively healthy.

The credit crunch tied to the trouble in housing and subprime mortgages is likely to persist through midyear as the economy stays soft, says economic forecaster Harry S. Dent Jr. "The second half of 2008 is likely to be strong, but the first half is going to be on the weak side," he says.

Swonk says credit availability depends on your industry. "Right now, most small businesses have not reported much tightening of credit conditions at all," she says. "But anything housing-related is going to get much tougher credit restrictions." On the other hand, lenders welcome export businesses and those providing high-end services to affluent consumers, so "credit there will remain extremely good," Swonk says.

One issue of particular interest to small businesses is the availability of home equity loans, which many entrepreneurs use as a financing tool. "It's more difficult when housing prices aren't appreciating," Swonk says, "although there's not necessarily a crunch there."

The news on interest rates is mixed. Swonk sees further easing by the Federal Reserve Board, but Dent says any downward trend won't last long. "Once we get out of this near-term slowdown, we're going to see more inflation in the second half of 2008," he says. "That's going to raise long-term rates."

Energy-sensitive businesses may face belt-tightening in 2008. Whatever the short-term trend in oil, prices for gasoline will almost certainly rise for a while as the record oil prices reached at the end of 2007 filter through to the pump, Swonk says. And, in Dent's view, while it may not happen soon, oil will once again reach new highs. "I see oil going to over $100 a barrel, to probably $110 to $125 by late 2009 or early 2010," he says.

While oil doesn't directly concern most entrepreneurs, nearly all small businesses will have to contend with a worsening talent shortage. "The harder issue for small businesses will be competition for human capital," Swonk says. Entrepreneurs will have to find ways to attract skilled workers lured by the bigger salaries and better benefits big corporations offer.

Higher oil prices, inflation and stiffer competition for employees aren't the most positive forecasts for 2008. But, as Swonk points out, entrepreneurs who export or who sell to wealthy consumers can expect to be shielded from the worst of it and stay prosperous even as the economy works through the housing recession and credit crunch in the first half of the year.

While 2008 won't represent a dramatic departure from the prior year, long-term forecasts do suggest a major turning point just around the corner. Dent expects the change to come toward the end of next year as aging baby boomers reduce their spending and induce a decade-long economic contraction. Technology spending will drop, and oil and commodity prices will collapse, he says. "It's the same thing that happened to Japan in the 1980s."

Celente is similarly gloomy. "These are not high economic times," he says, "and we see nothing in the economic future that tells us it's getting much better. In fact, we see it getting much worse."

The good news is that opportunity exists now and will exist in the future in substantial niches. For example, Celente says, alternative energy technology is poised for a breakthrough. He also notes that the widening income inequality--in 2007 the highest-earning 1 percent took in a larger percentage of total income than at any time since World War II--means catering to the wealthy is a growth business.

And Swonk reminds us that while it's hard times in housing and related sectors, we've seen worse. "It's certainly nothing like the bust of the 1930s," she says. "Keeping it in perspective is extremely important."


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