The tea leaves are looking better. There is a lot of money out there waiting to be invested. But there also remains a big world of hurt.
Forgive me for the short sermon that follows, even if it is Sunday, but I will tie this back to our economy, and provide you with reasons to be encouraged, despite the good, the bad, and the ugly which I detailed in my last blog.
In good economies and bad, and we are probably somewhere in between right now, there are those prospering and those suffering. To those who are doing well, consider those are who are not. You may view them – the jobless, the homeless, the underemployed (poor) – as somehow beneath you, as lazy, stupid, unmotivated, and undeserving.
Now if you really believe that, there is nothing I can say to change your mind. But, nonetheless, I will submit that we are all in this boat together. You are not insulated from the circumstances of others, even if you choose to look the other way.
This notion that we are all in this together ties directly to the economy, specifically consumer confidence, which is not what it should be. Many U.S. household continue to operate under duress. But despite the housing crisis, and it is a crisis, despite rising fuel prices, despite supply chain disruptions from Japan, the U.S. economy is clearly on the road to recovery.
In theory and in reality for that matter, a recovering economy should mean fewer people struggling. But this recovery has been tentative, with fits and starts, and consumers remain wary and cautious to say the least.
“Higher prices at the gas pump and at the grocery store have rattled consumers,” said Tim Quinlan, an economist at Wells Fargo Securities LLC in Charlotte, NC.
The Good News is Job Growth
The good news, the most important news, is continued job growth. We’ve had it for four months in a row now. The U.S. economy added 216,000 private-sector jobs in March and the unemployment rate declined to a two-year low of 8.8 percent. The Institute for Supply Management said the manufacturing sector grew for the 20th straight month in Februrary.
Record exports and gains in business and consumer spending are prompting companies like Chrysler to boost staff. The Auburn Hills, Michigan-based company, aiming for its first net profit since emerging from bankruptcy in 2009, plans to hire 1,000 engineers. It is also urging its dealers to hire more salesmen and service workers to help boost sales by 32 percent this year.
Auto sales, after climbing for six consecutive months, reached the highest level in more than a year in February.
In Texas, where I live, factory activity increased in March to its highest level in nearly a year. Twenty percent of Texas manufacturers reported hiring new workers compared with 8 percent reporting layoffs, according to the Federal Reserve Bank of Dallas’ Texas Manufacturing Outlook Survey. The share of firms reporting decreases in employee workweeks fell to its lowest level since 2006.
In the latest survey by KPMG International, released last week, 68 percent of U.S. manufacturing executives expect improved business activity, and 41 percent expect employment to increase. These are people on the front lines. They should know as their business is their business. And by and large, corporate America has been sitting on tons of cash reserves, waiting to pull the trigger.
Corporate investment will rise 11 percent this year as sales pick up, following a 15 percent gain in 2010, according to a Feb. 2 report from Bank of America Merrill Lynch. Inventory rebuilding, low borrowing costs and government policies that include a new tax break on equipment purchases will be powerful spurs for capital spending. It would appear the trigger is being pulled, at least by some.
Cummins, a maker of diesel truck engines and generators, has said it may lift capital spending this year to as much as $650 million, or 79 percent higher than 2010’s $364 million. The Columbus, Indiana-based manufacturer anticipates adding about 2,500 workers, a 15 percent increase to its U.S. workforce of 16,500.
The capital-spending boom should continue this year and into next year, according to Robert Baur, chief global economist at Principal Global Investors, which manages $232.4 billion. “Companies underinvested to such an extent and for so long that there’s a great deal of catch-up to be done,” he said.
Back in the Saddle Means More Projects
So there is this general feeling for companies to get back in the saddle to take advantage of record amounts of cash generated by healthy profits. This bodes well for site selection consultants, like me, and economic development organizations, because it likely translates into increased manufacturing production, increased investment, and improved business activity. This means, for a lack of a better of the word, more “projects.”
More projects mean more companies investing capital in both existing operating facilities and future operations at new future locations. Such investment typically results, although not always, in new jobs. There is also increasing evidence that some U.S. manufacturers are taking a closer look closer to home for making such investments. The reasons are many, but include the increased cost of fuel and supply chain vulnerability.
A World of Hurt Remain
But despite the promising signs, and they are certainly there, paychecks are flat, households are getting squeezed, and 13.5 million Americans remain out of work. The housing market continues to show profound weakness. That world of hurt is all too real.
Rising foreclosures are swelling the number of houses on the market, which may put additional pressure on prices in coming months. At the same time, a further decline in home values (and they keep falling in most markets) may keep potential buyers on the sidelines as they foresee better deals, hurting construction and consumer spending as owners’ equity evaporates.
“Prices will continue to move downward probably for the rest of the year,” said David Semmens, an economist at Standard Chartered Bank in New York. “They won’t turn around until you have consumers feel that housing is genuinely cheap and until they feel a lot more secure in their labor-market position.”
Eighteen of the 20 cities in the index showed a year-over- year decline, led by a 9.1 percent drop in Phoenix. In January, prices in 11 markets dropped to fresh lows from their 2006, 2007 peaks, the same as in December.
Foreclosure filings may climb about 20 percent in 2011, reaching a peak for the housing crisis, according to Irvine, California-based RealtyTrac Inc. A filing influx could add to the surplus of unsold properties and lead to more declines in home values.
“The housing market recession is not yet over,” David Blitzer, chairman of the index committee at S&P, said in a statement.
A Sign of the Times?
Rutgers University’s Programming Association paid $32,000 in student fees to, brace yourselves, people: Snookie.
Yes, it is true. The pint-sized “Jersey Shore” star was hired to speak before nearly 1,000 undergraduates, where the topics ranged from hair styling to lessons for life.
The reality TV star’s $32,000 fee is $2,000 more than Rutgers’ commencement speaker, Nobel-winning novelist Toni Morrison, will get when she addresses graduates this spring. Go figure.
Snooki’s parting advice to students: “Study hard, but party harder.”
Lord help us.
Dean Barber is the president/CEO of Barber Business Advisors, LLC, a site selection and economic development consulting firm in Red Oak, Texas — www.barberadvisors.com