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Bound For Glory ! 2003...and Beyond
Part 1 of 2
For most in our industry, 2002 was a bad year. For many, 2001 was no bargain either. Nor has the first quarter of 2003 exactly sparkled. After a full year or perhaps two of consistently declining revenues and a slow-to-disastrous market, the tendency is to become depressed and think that things will never improve.
Of course they will! Despite claims of "sea changes" and major traumas to our industry, the reality is that our industry has followed a pattern of a long boom and a short bust for many years. This author well remembers his interviews of a dozen years ago when, in preparation for a product dealing with the anticipated '91-'92 Recession, he contacted scores of people with forty and fifty years in our industry. Hearing the stories of the Great Slump of '46 and the Crash of '57 gives one a long-term attitude. The reality is that after every Recession, our industry comes back, stronger, better, with higher per-desk-averages and higher average fees than before the Recession. And so it will be again...
In point of fact, this Recovery seems to be shaping up remarkably well. As a result of an unusual confluence of seemingly unrelated factors, we may look forward to an improving 2003, followed by a significant boom for many years following.
Observe the following factors, and note how each reinforces the others...
The economy is in recovery. But if that is so, why don't you feel it? Because it is growing too slowly to generate new jobs! For the past year, we have been in what economists call a "growth Recession". Generally, it takes 3.5% growth rate to yield new jobs. We've been limping along at half of that. Recall that after '91-'92 Recession, it was 35 months before unemployment returned to Pre-Recession levels…
The point is, however, that when trendlines are up, it doesn't take much for other factors to give a real boost in the direction they are already going. GDP hit 2.4% growth for 2002. Not enough to generate new jobs, but definitely forward movement and definitely no Recession. Combined with the following factors, an impressive jump-start may already be on its way!
Productivity-the amount of output for an hour of work-grows significantly in the latter portions of a downturn. You'll hear this touted as a positive, due to its keeping a lid on inflation. (More output for the same cost of labor means companies don't raise prices). Rather, it is simply a factor of less hiring, thus more results from fewer workers. Workers become more efficient because their employers demand it, and there is no "fat" in payroll to absorb incompetence or time-wasting. And of course, the lay-offs that occur in the early portion of a Recession are a powerful motivator to those who remain.
Along with that, you have businesses working existing employees longer hours, rather than hiring additional workers.
The rapid recent increase in productivity (4.8% in 2002, the most in a decade) means that the Recession is coming to an end. Such productivity increases happen at the end of a downturn; it cannot continue forever, and companies will soon be forced to hire, as other factors kick in to increase demand.
- The Legacy of Alan Greenspan
Alan Greenspan was perceived as perhaps the best Federal Reserve Chairman in history up until this Recession. See book, "Maestro!"
by Bob Woodward. He wishes history to continue to view him in this manner.
After maintaining interest rates at low levels all year, the Fed cut interest rates a further half point in November, to reach a 40-year low. Greenspan has many other tools at his disposal as well, including injecting massive cash into the economy by buying back US Treasury bonds.
Extremely low interest rates and a Fed Chairman determined to maintain his "Maestro!" accolades are a powerful help to an already recovering economy.
- The End (Almost) of Gridlock
Here are the facts. A divided government prevents things from getting done. Under normal circumstances, some may argue that this is good. However, if one wishes serious economic growth policies, it is a hindrance.
Moreover, we now have a President who is not only an experienced businessman, but a classically-educated Harvard MBA. And a Vice President with a string of successes at turning around failing corporations in several fields. Rarely have we had a ticket so thoroughly capable of knowing how to get the economy moving. And now that obstructionism is reduced, they are quite likely to do so. Look for "investor-class" tax cuts, ie. elimination of double-taxing of dividends, expansion of IRA and Keogh limits, speeding up of across-the-board tax cuts.
Additionally, if "tort reform" i.e., limits on irrational lawsuits and damage awards against business, can be enacted, the economy will really surge long-term. Companies of all sizes, but particularly the healthcare industry, will benefit markedly. This damaging practice of litigation-for-profit directly leeches money from research, investment, and other productive areas into totally non-productive wastefulness. If it can be ended, increased investment and hiring will be the result. It will take 60 Senate votes, so hope for some in the opposition party who put Country over Cash.
But you can bet that the White House and the President's new economic team will be pushing hard in these areas. If they succeed, we will all benefit greatly.
- The Stock Market
You can argue as to whether the Stock Market leads, trails or reflects the economy. However, both are down at the moment.
Much of the bad market, especially during the past six months, is surely due to uncertainty or "war worries". Once these concerns are behind us, it is reasonable that the somewhat positive economic reports will have their effect. A significant and sustained rebound will be a reasonable response.
Should, as many believe, the Bull Market return, it would certainly have a most beneficial effect upon the economy at large, due to improved attitudes and more " wealth effect". Improved production for you would be the result.
As this is written, the liberation of Iraq has not begun. Nevertheless, this President is well-familiar with Napoleon's maxim, "If you start to take Vienna-take Vienna!" and may be expected to follow through.
While few wish a war, a just, necessary, and successful war will add to existing trendlines. And those economic trendlines are up!
Some recall previous wars which did not turn out well or which harmed the economy. However, they forget that it was only after many years or when the economy was already spiraling down that these results were seen.
The nation will cease production when the bombs start falling, as we all watch Fox News Channel. However, Professor Bernard Lewis, probably the pre-eminent Middle East authority (recommended book: "What Went Wrong?") has said that we may look forward to the Iraqi people cheering from the rooftops when the tanks roll into Bagdad. Should that be the case, consumer and business confidence will soar.
- A New Major Market
Recall the Glory days of International Trade in the 90's, when one of every four dollars was linked to global trade. Bill Clinton has said that 30% of the entire growth of the 90's came directly from that source. Much of that is gone now, the result of an international economic slowdown.
How about a new major modern market, though? One which needs everything from fertilizer and farm machinery, to telecom and PC's, to paving equipment and electricity grids? And suppose the US controls that market? Would that help the economy? You bet it would!
Is there such a market, in need of everything required to run a modern society? There sure is! We call it Post-Saddam Iraq. And they can pay for what they need too. Cash, not credit. Think...Marshal Plan and "Rebuilding of Japan"-for which we get paid.
- Lower Oil Prices
When oil prices drop, it has the same result as a tax cut for every company and person in America. It is an enormous benefit to us all. But it takes a long while to develop new oil supplies. Or does it?
Iraq's oil reserves are second only to Saudi Arabia's, and may even exceed them. And without crude, Iraq will have nothing to pay for the rebuilding of its country. Oil revenue generated more than 90% of foreign exchange before the UN-applied sanctions of 1990. Moreover, a post-war Iraq would be so desperate for income that it will almost certainly ignore any quotas set by the OPEC cartel.
With foreign investment, a new government could ramp production up to 8 million barrels a day within a decade, compared to 2 million now, or 6 million by the Saudis.
We will rebuild Iraq, as the President has said. And they have the oil to pay for it themselves. To the benefit of all concerned!
Finally! We've been hearing about it for years, in books and articles, but the long-term future for our industry is incredible. The demographics-population trends-of 78 Million Baby Boomers followed by 43 Million Gen-X-er's practically guarantee a brilliant long-term future. That's what Paul Hawkinson, editor of this fine publication, meant when he wrote, "the talent shortage is systemic, not economic".
Look for next week's edition of InFocus and for Mr. Finkel’s industry predictions.
Steve Finkel is a veteran of 6 Recessions and 5 Recoveries in our industry. Among his many products are two extremely well-researched audio series on dealing with a Recession. Personnel Consultant Magazine, published by National Association of Personnel Services, has written that he possesses " the most in-depth knowledge of Search and Placement in our Industry History". Staff Digest has referred to him as " an industry visionary". He is the author of the 360-page hardbound book Breakthrough written specifically for the Staffing industry and distributed in 22 countries. His website is www.stevefinkel.com, or he may be reached at 314-991-3177.