Dean Barber

Let Us Keep Watch on Gathering Storm Clouds

In Uncategorized on April 10, 2011 at 7:33 am

For weeks now, I have been pointing to clear and convincing evidence that we are slowly but surely coming out of this nightmarish recession, all the while pointing out that all is still not well on Main Street.

 But there have been encouraging signs, as I have detailed in past blogs. Manufacturing is not dead and gone in this country. Far from it, manufacturing, which represents 11 percent of the U.S. economy, has posted gains for 20 months in a row now and has been a bulwark to this recovery.

 Commercial real estate is showing signs of starting to rebound, but most important, there has been job growth. All this bodes well for the future.

And while we applaud and do our best to contribute to a recovery, we nonetheless watch the darkening clouds horizon in preparation to respond to any storm that may come our way. How bad are these storm clouds? Not sure just yet, but let’s not forget they are there, at least for now.

 Thankfully, one of those dark clouds has dissipated. The shutdown of the federal government was averted. A shutdown was unlikely to have caused much damage, unless it would have been protracted over weeks. Then it would have costs billions and then its effects would have been real.

But the jabber mongers in Washington came to an agreement to reduce federal spending by $38 billion. It’s a start. But the bigger problem of deficit reduction remains to be solved.

 Then there is continuing saga of Japan. When the No. 3 economy in the world is knocked to its knees, we here in the United States will also feel the body blow in terms of supply chain disruptions. More on that in just a moment.

 And then there are rising oil prices. This is the spooky storm for me, the one I think that can do some lasting damage. But first, let us turn to our attention to Japan, where one sometimes wonders when the rising sun will rise again.

Pain to Gain?

Toyota said last week that stopping some production in its U.S. car plants would be “inevitable” after Japan’s earthquake and tsunami crippled the supply of parts.

The company also said it continues to assess the situation regarding its Japan supply base in the wake of the March 11 disaster that left the country’s industry with serious power supply problems.

“We have communicated to team members, associates and dealers here that some production interruptions in North America are likely. It’s too early to predict location or duration,” the company said.

General Motors Co., which temporarily shut down its Shreveport, La., plant for lack of parts, has more than 100 people assessing the effects of the earthquakes in Japan on the automaker’s supply chain, chief financial officer Dan Ammann said at a meeting with analysts this past week.

But Japan’s pain could eventually become our gain. I don’t like to put it that way, but it is the truth.

 A new survey released by Accenture found that 61 percent of manufacturing executives — mostly with headquarters in North America — said they are considering shifting their manufacturing footprint to be closer to centers of demand, and 59 percent said they intend to pursue new supply options. Translation: They are looking closer to home for investment opportunities.

As a site selection consultant, that is music to my ears.

When deciding where to locate manufacturing operations and supply facilities, 67 percent of respondents cited “proximity to customers/markets” as a top factor. That will especially be so with rising fuel prices.

 “There’s an opportunity for companies to be more comprehensive about the way they address risk assessment, and have more flexible supply networks, more diversified supply networks,” said Simon Ellis, practice director for supply chain strategies at IDC Manufacturing Insights, based in Framingham, Mass.

Say It Aint So

Just when companies have finally stepped up hiring, rising oil prices are threatening to halt the U.S. economy’s gains.

Some economists are now scaling back their estimates for growth this year, in part because flat wages have left households struggling to pay higher gasoline prices.

For consumers, more expensive energy siphons away money that would otherwise be used for household purchases, from cars and furniture to clothing and vacations.

Two-thirds of Americans say they expect rising gasoline prices to cause hardship for them or their families in the next six months, according to a new Associated Press-GfK Poll.

Seventy-one percent say they’re cutting back on other expenses to make up for higher pump prices. Sixty-four percent say they’re driving less. And 53 percent say they’re changing vacation plans to stay closer to home.

Energy Secretary Steven Chu said on Thursday high oil prices posed a threat to the global economy.

“The oil producer countries and the oil consuming countries are concerned because it does have an impact on a very fragile economic recovery. There is great concern,” Chu told a news conference.

This comes at a time when other prices also are on the rise. Food prices are expected to rise 3 percent to 4 percent this year, with the steepest hikes in dairy, meat and coffee. Clothing sellers are raising prices to offset soaring costs for labor in China and for raw materials like cotton.

Consumers surveyed in March for the Conference Board’s Consumer Confidence Index voiced concerns about inflation and stagnant incomes. The index fell sharply from a three-year high in February, reversing five straight months of improvement.

With oil prices rising quickly, energy companies are looking to extract more fossil fuels here in the U.S. — a boon for companies that own the rigs needed to reach domestic oil and gas.

Oil surged above $112 per barrel Friday following a drop in the dollar and worries about shipments from the world’s major oil suppliers. Some analysts are predicting prices to rise to $150 per barrel, which rings alarm bells for economists who warn the high oil prices could trigger a recession.

I don’t mean to be an alarmist, but the simple truth of the matter is that our recovery could be jeopardized by high oil prices. Let’s hope for the best on this one.

Grandma is Packing in Montana

RadioShack stores in parts of Idaho and Montana are offering free guns to first-time subscribers of satellite TV services. The guns-for-subscriptions offer is the brainchild of Steve Strand, owner of a RadioShack store in Montana’s Bitterroot Valley.

Strand said the promotional campaign has proved a sure-fire strategy to target satellite subscribers in a region that favors firearms. Subscriptions for Dish Network packages have increased threefold since he began offering freebies on pistols or shotguns.

Strand said women make up the majority of his growing customer base.

“All I can tell you is, grandma is packing a gun in Montana,” he said.

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

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