The economy is ever so slowly showing small signs that we may be experiencing some recovery. There are more companies that are beginning to move out of a survival mindset and back into a growth mode. Some of these companies are relying on mergers and acquisitions to achieve new growth, targeting other businesses that may complement or expand their basic model. Others are looking at better and more cost efficient ways to manage their businesses.
Many business leaders have stated that the fundamentals of productivity have changed for good. Uncovering new ways to free up cash and lift operating performance and production. Many more companies are going on the offensive, they are aiming to drive workplace efficiency. They are accomplishing this by focusing more on retention – increasing salaries and benefits, increasing production among their current employment base and with development and empowerment of top talent. They have discovered that operational efficiency as a result is the best way to deliver more value in today’s markets. They are focusing more on empowering their top talent to pursue better and new creative solutions. They are utilizing the knowledge and experience of those they already have on board. Even with a mild economic upswing on the horizon, the focus on doing more with less won’t fade away.
Core business practices are mandating managers and other staff to anticipate risks earlier and manage them more effectively. This also requires establishing what risks are worth taking and which risks should be avoided. When proper and stable risk management is most effective, key roles and responsibilities will be communicated throughout the company. In business today where we hear of previously unimaginable events, companies need to master the discipline of risk intelligence. As this recession begins slowly to gain, recovery will not follow a familiar pattern; companies will need to contend with a new and more competitive marketplace.
The recent economic growth report said we had about a 5.6% growth rate. After you take out restocking of low inventory levels, the real number for growth rate was only 1.8%. A 40% increase in gas prices over last March drove the March Consumer Price Index up about 2.3%. Gasoline prices are based mostly on oil prices, which were only $40 a barrel this time last year. What may help some in the months to come is that demand in this country is still below numbers in the past and gasoline supplies are still in surplus. What can hurt is if speculators again start up and force prices on a more brisk upward trend. Just in the past few weeks we have seen gas prices edge up by .10 to .15 per gallon.
I believe we are still looking deep into next year to see any real sustained growth in this country. The time frame could grow much shorter if job growth was surging. Unfortunately it is not. The mild increase in employment in March was not sufficient enough to bring down the 9.7% unemployment rate. The most recent look at the employment market is still not encouraging. For the week ending April 3, about 460,000 new applications for unemployment benefits were filed. This begins another week in what has become a stubborn trend which cannot seem to produce sustained employment improvements. It is anticipated that service industries are on the cusp of hiring and we may see some measurable improvement before too long. Unfortunately it is very likely that those joining the ranks of the newly-unemployed will be many state and local government workers many that are connected with public education, as many state governments have announced that their budgets are being severely curtailed.
The rising stock market seems unable to overcome weak labor markets and the severe downturn in home values, so it may be a while until sustained growth can be obtained. Many areas of the country are still suffering from the economic downturn and home prices have yet to show sustained movement. It has not been an opportune time to place your home on the market in many parts of the country. Many people are selling out of desperation due to job loss or decrease pay. On the same block there may be a home for sale for $300,000 and right down the street 2 similar homes that were foreclosed on can be purchased for $90,000 to $150,000.
Here are some parts of the country that have been hit hard and have yet to see an upward trend:
A. Las Vegas, Nevada
The population from about 1996 – 2001 saw huge increases yearly. But over the past 2 years it has declined about 6 to 7%. The average wage has sharply declined in this time period also. They have seen a very steep drop in new building permits, with a decline of 63.63%. Unemployment from January 2007-January 2010 has sharply increased by 180%. There has been a negative in new jobs added from February 2007 - February 2010 of a negative 12%. To top that off the change in median home prices from market peak in 2006 was a huge drop of 50% from that peak. Many people who bought even before the peak have seen prices decline. A home I had purchased in 1999 for $118,000 I sold in 2001 for $149,000, it was sold again in 2005 for $265,000, the current value of that home is now at $99,000 a 17% drop from what I paid for it when it was newly constructed and a 63% drop from its last selling price.
B. Sacramento/Roseville, CA
The Sacramento area of California saw a decrease in population of about 3% in the past few years. There was a remarkable drop in new building permits in the last 3 years of about 75%. Unemployment in this area from 2007 to 2010 decreased by 142%. New job creation decreased by approximately 8% and the decline in home prices saw a drop of over 35%.
C. Orlando-Kissimmee, FL
In the Orlando area of Florida from 2007 to 2010 building saw a very steep drop off with new building permits dropping by over 65%. The population in this area saw a decrease of about 4% as people relocated to areas with better job opportunities or were forced to move in with relatives in other areas. The unemployment rate during this period realized an outstanding drop of over 250%. New jobs adding in this time resulted in a negative of over 8% and home prices dropped by 35%.
D. Phoenix, AZ
Phoenix, AZ was another area hit hard over the past few years. Between 1995 and 2003 that saw double digit increase in jobs, home prices, population and building. Over the past 3 years though the population has seen a decline of about 7%. New building permits declined by a whopping 83% as home prices declined by over 35%. Unemployment in the area jumped by over 145% and new jobs added was a negative 10%. I knew a couple who moved out there in late 2005, he had taken a new job with a security firm and they had a home built for about $250,000, homes at the time were going up everywhere in the Phoenix area. By mid 2007 his company went under, he put his home up for sale, but they were still building in his community and prices there were on the decline. The new homes were now selling for $200,000, not wanting to take a loss he rented it out and moved back to the DC area to take a job. Less than year later the renter lost his job and moved out, he had no other choice and let the home go into a short sale.
E. Los Angeles/Long Beach, CA
Good old Los Angeles, the City of Angels. I just heard that last week, Nicolas Cage lost two adjacent Malibu, California, properties and his Bel Air home to the bank. This is after his two homes in New Orleans went into foreclosure at the end of last year and his Las Vegas Mansion which he paid $8.95 Million for in 2006 just sold for $4.95 million. See photos here: http://www.lasvegassun.com/news/2010/jan/25/nicolas-cages-foreclosed-las-vegas-home-sells-495-/ . His Bel Air home failed to sell at Auction last week. Cage had initially tried to sell it for $35 million. The home went up for auction at $10.5 million and had no takers. The home was once owned by Dean Martin and also by the heartthrob Tom Jones, the 11,817-square-foot compound has a 35-seat home theater, a full Olympic pool, nine bathrooms and the walls are covered with framed comic-book covers from Cage’s collection. He blames his current financial difficulties on his finance/business manager Samuel Levin and is currently suing him. So even the stars in this city have been hit somewhat by the recession (I say it was still on the brink of a depression). Unemployment in LA jumped a staggering 163% in the past 3 years while new building permits declined by over 50%. Home prices in the area dropped almost 30% and they had a new jobs added decline of over 8%. The population in the city remained relatively unchanged.
So as you can see we still have quite a ways to go. Home prices need to show some more movement. You can expect the Federal Reserve to keep the borrowing rate pretty much stable but I would still expect to see an increase of at least ¼% in the next several months and maybe another ½% over the next 8 – 12 months. We need to get the value of the dollar to increase some and with the interest rates so low, we can not expect to see much movement. The government still needs to find a way to motivate and stimulate the middle class in this country so that they will be able to start spending again. As I have been saying, until this core group of people in this country start spending again we can not expect to see us pull ourselves out of this recession fully. My Explosion of Thought!
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