Expect Positive, But Slow, Economic Movement in 2012

Early in the post-downturn era, forecasts for economic recovery looked hopefully to 2012 as the pivotal year when the economy would emerge from a three-year corrective process and transition into a more sustained, stable period of GDP growth. Governments would begin to see the benefits of the painful realignment of programs with the reduced budgets of the preceding three years and begin looking forward to a stronger footing and more positive outlook.

While that vision will not be fully realized in 2012, there is positive economic movement – albeit somewhat slow – that may point to the anticipated breakthrough in the mid/late-2013 to early-2014 period. Of principal note, since the U.S. economy contracted by 2.6 percent in 2009, it has experienced two consecutive years of growth, 2.9 percent¹ (2010) and 2.1 percent (est. for 2011). Canada followed that same pattern, losing 2.8 percent in 2009, with consecutive gains in 2010 and 2011 of 3.2 percent and 2.3 percent², respectively. Table I provides benchmark data to compare how the past two years’ growth rates compare to growth rates during the preceding three decades.

Budget estimates for 2012-2015 (see Table II) indicate that governments are revising downward their expense and revenue forecasts as they continue to balance service demands, long-term debt and revenues. While reduced revenues and expenditures may not seem immediately positive, there are some positive notes associated with those reduced projections. For example, the revised numbers reflect reduced budget gaps, perhaps reflecting the fiscal restraint born from state and local entities adjusting to economic realities and conservative growth estimates. Indeed, state budget totals show a prospective return to revenues exceeding expenses beginning as early as 2012.

What’s holding back greater economic growth?

The principal roadblocks are not to be found in the behaviors of producers and consumers. That part of the supply-and-demand system seems to be working. And though the 2012 GDP forecast is for modest growth of 1.5 percent (plus or minus 0.3 percent), the 2012 growth rate will hopefully prove to be the lowest rate for the remainder of the decade.

While the housing market continues to work through its woes and the Consumer Price Index increases seem to be slightly ahead of consumer income growth by 0.2 percent, the greatest impediment to growth at this time stems from the intangible yet tremendously influential lack of confidence in the fundamental creditworthiness of many governments that comprise the so-called advanced economies.³

The critical challenges facing advanced economy governments in 2012:

• Debt restructuring and long-term fiscal responsibility plans for EU-15 countries, Greece, Ireland, Italy, Portugal, Spain
• In the U.S., overcoming the political stalemate necessary to achieve alignment of political will with fiscal responsibility

The prospects for the EU look substantially more positive than they have in 2011 with Greece and Italy both moving forward restructuring and economic austerity proposals earlier this month. The austerity requirements of these proposals will face great resistance from each country’s citizenry, yet both countries are loath to be excluded from the EU which is the stark alternative to internal financial reforms.

For the United States, 2012 is a presidential election year, which suggests that party politics will prolong realization of substantive budget reform. Meanwhile, U.S. government bond ratings continue in the crosshairs of Moody’s and Standard & Poor’s, and barring intervening bi-partisan budget compromise in the coming months, an automatic budget cut⁴ of $109 billion evenly split between defense and non-defense programs will take effect January 2, 2013. Those pressures may not be enough to offset election year party positioning. The win-win solution for both parties is to claim victory that the bi-partisan deficit reduction plan adequately reflects the fundamental principles of each party’s ideology. That, however, may only be possible after the election provides a clearer mandate for one party or the other.

Increasing international focus on public procurement

The global recession and accompanying politics continue to burden government procurement professionals with the responsibility of maintaining operations with less financial and human resources. While that burden is not unfamiliar, for many procurement professionals it has come with even greater pressure to be sensitive to how contract awards contribute to supporting economic growth and supplier segments.

The elevated attention directed toward procurement enables procurement managers to both demonstrate their unique position to influence the success of their entity and in the process to educate its leaders on the value of maintaining the integrity of procurement practices that serve the long-term interests of their agency and community.

In 2012, collaborative practices both internal to agencies and across jurisdictions will continue to grow into standard, institutionalized practices. With expanding interest in the “lean thinking” buzz that started to catch on more broadly with public sector managers in 2011, procurement departments already demonstrating a collaborative, customer-oriented disposition will find their approach reinforced by the cross-functional spirit of lean thinking.

Heightened interest in the value of procurement is not unique to the U.S., Canada or developed nations. Developing nations such as China, India, Mexico, Brazil, South Africa, Saudi Arabia to name just a few are focusing resources on developing effective government procurement processes and practices. As such, the already substantial recognition and adoption of the Values and Guiding Principles of Public Procurement in North America are poised for global proliferation in the coming year.

Demand for procurement professionals

Demographics and professional trends remain consistent with the 2011 outlook:

• Aging workforce. 15 percent or more of the existing federal⁵ and state⁶ procurement employees are eligible to retire in the next three-to-five years. Forecasting out as far as 2018, the percentage of federal acquisition employees eligible for retirement jumps to 60 percent.⁷
• Federal hiring plans call for adding more than 12,000 new procurement/acquisition/ contracting personnel by 2015.⁸ Update: Should sequestration take effect in 2013, there will be a negative impact on planned hiring of acquisition personnel in defense and non-defense agencies. Specific numbers however were not available at the time this article published.
• The transition of procurement from a transaction-centric function to a center for applied strategic business practices. The transition demands workers with a strong education; business, contracting, legal, and/or finance acumen; systems awareness; and effective communication and partnering skills
• Near-absence of higher education government procurement degree programs
• State and local governments increasingly require procurement practitioners to hold or obtain professional certification as a condition of hiring

Succession planning and “right-sizing”

For government agencies with little or no training dollars, effectively supporting – or even developing – a succession plan may be low on the managerial priority list. Still, public sector leaders will need to prepare for the inevitable transition of their procurement workforce. Succession planning often focuses on developing the necessary skills and abilities required of procurement personnel or otherwise acquiring the required experience through the hiring process.

The legacy of this recession for most agencies will be reduced procurement headcounts and budgets for training and development. Successfully adjusting to this aspect of ‘new normal’ may influence renewed interest in examining the scope of procurement and the balance between technology-based tools and human resources necessary to achieve procurement’s agency mission. In the process, additional momentum for lean thinking may come into play as entities consider pan-agency resource sharing and opportunities for alternative strategic approaches that support community needs.

Forecast summary

For the majority of governments, 2012 will be more of the same – with just a little less. Professional politicians around the world will be challenged to fulfill the duty intrinsic to their station: effective governance and fiduciary responsibility. Slow economic growth in 2010 and 2011, with projected continued slow growth in 2012, hints at an economic system in process of righting itself. The principal catalyst for growth is re-establishing credibility in government creditworthiness.

As government behavior takes center stage on the macro-economic stage in 2012, procurement leaders can anticipate even more attention backstage from colleagues in government who take increased interest in lean management practices, look to procurement as part of “the solution,” and the global desire for principled procurement processes.

The long-sitting Idaho Senator, William H. Borah (who served 1904-1940), observed, “The marvel of all history is the patience with which men and women submit to the burdens unnecessarily laid upon them by their governments.” As members of the public and of the public procurement profession, 2012 will be another year requiring much patience. Let us be marvels.

Endnotes

1. “Real Gross Domestic Product, Chained (2005) Dollars — Annual Percent Change.” U.S. Census Bureau. September 30, 2011.
2. “Economic and Financial Market Outlook.” RBC-Royal Bank of Canada. December 2011. p. 6
3. “Advanced Economies” are identified by The Conference Board in its Global Economic Outlook 2011 as the following countries: United States; European Union-15; Japan; and Others – Canada, Switzerland, Norway, Israel,Iceland, Cyprus, Korea, Australia, Taiwan Province of China, Hong Kong, Singapore, New Zealand. Collectively, Advanced Economies contributed to 49.8 percent of global GDP (2010).
4. The automatic budget cut, known as “sequester,” was agreed upon by Congress in the August 2, 2011, Budget Control Act as the alternative budgeting solution in the event the bi-partisan Congressional “Super Committee” was unable to develop a $1.5 trillion, 10-year deficit reduction plan by November 23. The Super Committee failed to reach agreement on a mutually acceptable plan. $109 billion in January 2013 is the first year of automatic cuts in a 10-year, $1.2 trillion deficit reduction plan defined by the Budget Control Act.
5. “FY2008 Annual Report on the Federal Acquisition Workforce.” Federal Acquisition Workforce. October 2009.
6. “NASPO Research Brief – Responding to an Aging and Changing Workforce: Attracting, Retaining and Developing New Procurement Professionals.” National Association of State Procurement Officials. October 2007. p. 5.
7. “FY2008 Annual Report on the Federal Acquisition Workforce.” Federal Acquisition Workforce. October 2009.
8. Combines civilian (2,397) and defense (9,887) additional acquisition positions. See Federal Acquisition Institute. “FY2008 Annual Report on the Federal Acquisition Workforce.” and U.S. Department of Defense. “Defense Acquisition Workforce Improvement Strategy.” Strategic plan submitted to Congress. April 2010.

About the author

Brent Maas is the marketing director for the NIGP, a professional association providing education, research and promotional programs to more than 16,000 procurement professionals from over 2,400 U.S. and Canadian federal, state, provincial and local member agencies. E-mail bmaas@nigp.org. Learn more about NIGP at www.nigp.org.

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