The Strategic Sourceror

Welcome to the Strategic Sourceror Blog. Dedicated to providing CEOs, CIOs, CPOs and Procurement Professionals with current business information, trends, procurement tips, industry news, cost-cutting techniques, and strategic sourcing best practices.

 
Strategic Sourcing
Need help with Strategic Sourcing? Source One Management Services, LLC has over 16 years of experience in driving savings and increasing quality of products and services for our clients.
-- Source One
Procurement Tools
Are you still managing your RFPs through email? Do you know where your contracts are and when they expire? WhyAbe.com offers completely free procurement tools including: RFX management, Reverse Auctions and Contract Management to help you automate your sourcing initiatives.
-- Visit WhyAbe
Procurement News
Source One, an industry leading procurement service provider, and ThomasNet, the leading industrial supplier directory, have teamed up to offer free procurement tools to the marketplace.
-- Purchasing Tools
Spend Management
Source One offers Spend Management Services to assis in managing operational spend in order to most effectively build and deliver your products or services while improving your profitability.
-- Spend Management
Feeds
Subscribe: Atom RSS

 
Add to Technorati Favorites
No Recession After All? Good News for Businesses
Thursday, February 21, 2008
The media has been adamant about the U.S. economy tanking into recession, with reporters putting their notebooks and tape recorders down and waving pom-pom's in support of economic strife for millions of Americans.

Why? Who knows? Probably because it's a compelling story line and probably because the media would love to hang a recession around President Bush's neck before he leaves office.

Fortunately for the rest of us, they may never get the chance. On top of some encouraging quarterly performance numbers from the likes of IBM, Wal-Mart and Cisco, now the Conference Board is reporting that, while the economy has indeed lost steam, it won't lose enough to fall into a recession. "While the correction in the financial sector is just beginning, the correction in the housing sector is nearly over," declares Gail D. Fosler, president and chief economist of the Conference Board. Her analysis comes from StraightTalk, a newsletter designed exclusively for members of the Conference Board’s global business network.

The Board reports that while the U.S. economy has weakened, business activity and corporate profits continue to rise. Consumer spending is continuing at a rate of 2 to 2.5 percent a year, and with the exception of the auto industry, the economy is showing gains virtually across the board.

"Exports are booming and imports and import penetration are down," says Fosler. "While there is continuing uncertainty about the economic outlook, economic shocks from the contracting financial sector are not enough to tip the U.S. economy into recession."

Fosler says that it has been a long time since the U.S. economy has experienced the kind of sustained downturn reflected in recent stock market declines. The 2001 recession was short-lived, and despite huge losses in the technology and manufacturing sectors, there was almost an undetectable decline in GDP. The last deep recession in the U.S. economy began in 1990. The economy weathered the 1987 stock market crash and the 1988 savings and loan crisis before being plunged into a recession by the Gulf War.

"Similarities between the current situation and the period leading up to the 1990 recession are striking, but there are also many differences," she adds. "The business sector today is fundamentally stronger than at any time since the 1960s, and booming exports are helping support solid and continued structural productivity gains.

Also, the policy sector is moving to establish a solid floor of tax and interest rate cuts to support the economy."

A big factor in her calculations, Fosler adds, is that the housing market correction is about over/ "Given the lags in the impact of the housing sector on the economy, even at current activity levels, housing will likely subtract about 0.4 percentage points from 2008 growth. Housing affordability is beginning to improve, and with the recent interest rate cuts and home price declines, it should improve further and limit the downside risk. January and February are not big months for housing, but rising affordability bodes well for the spring selling season."

In addition, the rise in households is increasingly outpacing the rise in permits, so the ratio is rising over time and is reaching a point normally associated with recovery in housing activity. The long housing boom of the past 15 years has taken the home ownership rate up from 64 percent to a peak of 69 percent in 2004, reflecting an intrinsic demand for housing. All of this adds up to good structural demand for housing if the credit markets and lending institutions can ease the credit flow.

The Board notes that the business sector, outside of the financial sector, remains strong. U.S. business has engaged in almost constant restructuring, and these ongoing adjustments to changing business conditions have left the nonfinancial business sector generally lean and focused.

The business sector is also benefiting from the export boom and strength in corporate activities outside the U.S. Exports are rising at about a 13 percent annual rate, and the slowdown in imports means that U.S. companies are taking a larger share of U.S. demand. The improvement in the trade sector alone is likely to add about a half percentage point to growth this year – more than offsetting the decline in housing.

The bad news is concentrated in the financial sector. Recent data indicate that financial sector profits decreased dramatically over the second half of 2007. Basic earnings data show that financial services profits collapsed from about $10 per share in the second quarter of 2007 to a loss of almost $2 in the fourth quarter. Not only have these losses been substantial, but they have been concentrated in some of the largest financial institutions, both in terms of assets and market capitalization. Top global financial institutions have disclosed roughly $125 to $150 billion in asset writedowns associated with the recent financial turmoil. But when all the dust settles, even if their profitability is damaged, their balance sheets are likely to be little affected. Because of the mark- to-market rules, the writeoffs associated with structured products, including subprime mortgages, are likely to be revalued over the course of the year as the markets begin to trade those securities.

Americans are clearly pulling back on expenditures, but not to dangerous levels, the Board adds. Although real consumer spending grew at above 4 percent in mid-2005, it has since slowed to the 2-2.5 percent range. On one level, this slowdown in consumer spending is a response to higher gas prices and low demand for automobiles. But there is very little impact evident from the effects of almost two years of housing declines. Income gains continue to be reasonably strong. Total wage and salary growth is running at about a 5 percent annual rate.

"On a broader level, it is important to recognize that the slowdown in consumer spending is part of the rebalancing of the U.S. economy,"concludes Fosler. "Americans have enjoyed over two decades of continuous consumer spending growth, which is one of the causes for the large trade deficits over the past decade. These gains go well beyond the normal term of an economic cycle and diminish as consumer needs are met or even overmet."

So, good news for businesses heading into spring, 2008. Not that the media would notice.

The Associated Press's headline on the very same report? "Business Group Says Economic Growth Will Weaken Further in Coming Months".

Just not the market for pom-pom's.

Labels: ,

posted by William Dorn @ 10:39 AM  
0 Comments:
Post a Comment
<< Home
 
Sponsors
Source One Spend Management Consulting

Free RFX, Reverse Auction, Contract Management Tools
Recent Posts
Archives
Links
Contributors
Other Blogs
Spend Management : Procurement Services : Free Procurement Tools : Strategic Sourcing