Paul
Harvey once offered one of his trademark stories on Christopher
Columbus. He outlined the delays, detours and dangers of getting
his project up and running. Halfway across the Atlantic, there
were serious concerns about survival. In classic fashion, Paul
Harvey said; "If Christopher Columbus had turned back, no
one would have blamed him. But had he turned back, no one would
have remembered him."
The US economy is in the midst of the longest recession since
WWII and the steepest since 1975. We are standing near the deep
end, more than halfway across. The next two quarters will see
more decline, with mild improvement beginning late this year.
A gradual recovery is expected in 2010, with most of the gains
coming in the second half of the year. Nearly every sector has
been impacted. The force of this storm has damaged even well run
businesses.
In addition to the massive injection of stimuli and very low interest
rates, there is a smattering of encouraging signs appearing in
some of the leading indicators.
The Purchasing Managers Index: One of the earlier leading
indicator signals is put out by the Institute for Supply Management.
A December 2008 low (1/12 rate-of-change) is in place, which means
we should see more positive signs of healing in the economy by
late this year.
Existing Home Sales rising (12/12 rate-of-change): Low
interest rates, a tax credit for first-time homebuyers and more
affordable prices are attracting investors and first-time home
buyers. Existing Home Sales, though still below last year, has
been steadily rising since last July (12/12). Critical to a sustained
rise in the overall economy is housing. The upside momentum here
is a good start.
Americans are Saving More, Spending Less: How "un-American."
Those in retail may not be thrilled, but this is a healthy trend.
Americans, not traditionally good savers (a negative 0.5% savings
rate in 2005) are holding onto some cash. Trust me; they will
start spending again (think 2010), just not at the same levels
we have seen in recent years.
Stock Market: The (S&P 500) bear market appears to
be over as of February (75% probability). While the trend reversal
is good news, don't mistake this as the beginning of a robust
rising trend.
Based on normal trend probabilities, a year out from the trough,
we would find ourselves 7.3% to 15.1% higher than where we are
at the April close. Two years out from this low, a typical rising
trend would leave us 23.5% higher than where we are today but
still 30.0% below the 2007 high.
No, I am not looking through rose-colored glasses. There are tremendous
hazards to sustainable long-term growth in view of the massive
stimulus and debt load we are accumulating. The implications on
the downside are numerous and profound; rising interest rates,
increased taxes and fees (everything from vices to tolls, from
energy to parties), depleted personal "fortunes", inflationary
pressures (commodities) and additional regulatory burdens for
businesses - to name a few.
For now, businesses should be focused:
Conserve cash. Don't survive the recession only to run
out of cash during recovery. Borrow now or at least secure a line
of credit. I tell businesses to have sufficient cash to last a
minimum of four more quarters with declining sales revenues and
still launch you through the recovery phase.
Courage. Leadership is influence. Set the example. Focus
on what you can do, not on what you can't. Your leadership team
should be of one mind and spirit. Be relentless in improving products
and services.
Connect with Customers. Even if no one is buying, you want
your name to be first on their radar screen as the recovery takes
shape. Refine your competitive advantages. Perfect your elevator
speech.
Creative Thinking. The future will not be like the immediate
past. Challenge some basic assumptions. What if conspicuous consumption
does not return next year or even by 2011? How can I position
my business to benefit from the administration's priorities? Do
your due diligence now on the key initiatives for 2010. Remember,
bigger is not better. Better is better.
Remember the words of Ralph Waldo Emerson, "What lies behind
us and what lies before us is nothing compared to what lies within
us." Set your sails.
Dr.
Jeff Dietrich is a senior analyst with the Institute for Trend
Research, which produces a monthly economic report called
EcoTrends®. Check out the website at www.ecotrends.org
for other services. A company Economic Timing Analysis (ETA) compares
your Sales data to the leading indicators in this report and provides
your business with the timing on the highs and lows. Jeff is also
available to speak at company, industry and association meetings.
He can be contacted at jeff@ecotrends.org
or call Debbie Brown at (603) 796-2500.
Inc.
Are
We There Yet?