The Entrepreneurs: Economic forecast for 2014 a mix of hope, scattered caution

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Entrepreneurs can spend a big chunk of their business hours putting out wildfires, so they miss seeing the forest for the trees. How can entrepreneurs chart a path to success in 2014?

Key economic indicators -- such as gross domestic product, the purchasing managers index, the consumer price index and the behavior of the public stock markets -- offer decent trail markers.

GDP is the market value of all goods and services produced within a given period of time. The Federal Reserve estimates next year's to grow between 2.8 percent and 3.2 percent. The Bureau of Labor Statistics is more bullish, predicting an average annual rate of growth for real GDP of 3.1 percent. Business appears to be getting better, though hitting the historical growth average of 3.2 percent might be a stretch.

How about business confidence? The purchasing manager's index (PMI), a survey of 400 purchasing managers by the Institute of Supply Managers, is a dependable measure. The highest PMI ever was 77.5 percent in 1950; the lowest was 29.4 percent in 1980. The November 2013 PMI stood at 57.3 percent; OK, but not great.

Other recent institute estimates are also useful. Manufacturing company sales are predicted to show an increase of 4.4 percent. Nonmanufacturing company revenue estimates indicate growth of 3.6 percent. The institute forecasts hiring increases as well: 2.4 percent for manufacturing companies and 2.1 percent for nonmanufacturing companies. Again, not great, but not bad.

How will consumers be feeling in 2014? The consumer price index is the classic measure of inflation, which impacts not only how much a customer can buy but also what a company can manufacture. CPI tracks the change in prices of a "basket of goods" used by the average household, ranging from breakfast cereal to gasoline to computers, even funerals!

The Federal Planning Bureau estimates the index will increase at a modest 1.1 percent rate in 2014. This is well below the annualized U.S. average of 3.3 percent, compiled since 1914. Not bad.

What if one of the signs along the path to success next year is just plain hard to read? Health care, a big part of most any business's budget, is in transition. According to Kaiser Family Foundation surveys, small business health insurance premiums have risen 113 percent over the past nine years, and entrepreneurs are holding their collective breath as the Affordable Care Act continues its troubled rollout.

How does the startup capital environment look? Not exactly rosy. The Small Business Administration indicates that it will make $810 million available in loans, down $109 million from the previous year.

The stock market had a great year in 2013, which might improve investor confidence. High net-worth individuals are the primary source for "angel" investment in entrepreneurial startups. Better get their checks soon, though.

The Federal Reserve has announced that it will reduce its purchases of government bonds, a policy that has pumped cash into the economy. The Fed doesn't plan to shut the spigot completely and has pegged buying to the unemployment rate. Nevertheless, the stock market might take a hit as a result.

Also, some economists suggest under the "reversion to the mean" theory that stock prices eventually move toward the mean or average, which could point to a share price pullback in 2014.

Still, according to the National Venture Capital Association, "Quarterly venture capital investment activity rose 12 percent in terms of dollars and 5 percent in the number of deals compared to the second quarter of 2013 when $7 billion was invested in 956 deals."

A survey from the association also predicts an increase in initial public offerings, more jobs at startups and improved returns for investors.

So how will entrepreneurs find success in 2014? Let me make a suggestion. Take a breather from social media and cell phone apps. According to FierceDeveloper.com, the average annual revenue for a smartphone application is less than $4,000.

Maybe Kevin Bacon's character Chip Diller in "Animal House" gave the best advice for entrepreneurs in 2014. "Remain calm. All is well."

Of course, Diller was shortly thereafter trampled flat as a pancake.

Chris Allison is a former CEO of a public company, entrepreneur and angel investor. Recently, he authored a book titled, "You'll Manage: Lessons Learned from a Former CEO." He can be reached at christian.l.allison@gmail.com.


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