A Different Sort of Headline
Over the past couple of years, this nation has grown all too familiar with headlining “bad news,” particularly of the economic nature. However, most economists now agree that the recession is over, and signs are emerging confirming this pattern. Even so, the economic downturn experienced over the previous almost two years continues to linger as the nation steps out of the worst recession seen in generations towards recovery.
Not unusual to early stages of recovery periods, the nation will be characterized by mixed signals and the daily ebb and flow of information is expected to point in many directions for some time. One major signal of the strength of the economy is job growth. However, hiring is consistently one of the last indicators to turn positive during a recovery as employers have to feel confident that the upturn has staying power before committing to new jobs.
As a nation, we have yet to see indications that the economy is to this point. In fact, employment numbers for last month (October) indicate that there was continued decline throughout the United States, a loss of some 190,000 jobs. Likewise, the unemployment rate increased to 10.2% in October. However, the average number of people losing their job per month is declining; even so, some 15.7 million Americans are unemployed.
In Texas, the affects of the recession have been less severe than other states, and recovery is likely to be quicker. The Texas economy, somewhat sheltered from the recession from the onset due to a strong energy sector in a time of high oil and natural gas prices as well as a more stable housing market, appears to be leading the way in the recovery showing employment gains above all other states this past month.
Texas total nonagricultural employment grew by 41,700 positions in October of this year. In addition, the Texas unemployment rate was 8.3%. While still higher than the unemployment rate in October of last year (5.2%), the rate is significantly lower than the national average.
From September to October, five states, including Texas and the District of Columbia, saw employment gains including Michigan (38,600), California (25,700), Oklahoma (8,800), District of Columbia (5,400), and Montana (3,200). Although it is far too early to deem job growth a trend in any of these states, and, in fact, continued job losses can be expected, even single months of job creation signal that we are making progress down the road of recovery, and Texas is leading the way (the state also saw growth in a single month during the summer).
Like the nation as a whole, key growth sectors in Texas this past month were Education and Health Services (adding some 14,900 jobs) and Professional and Business Services (10,800). However, unlike the national employment numbers, Texas also saw positions added in some other key sectors. The Financial Activities industry grew by 4,500 jobs; Leisure and Hospitality saw an additional 2,600 jobs; and Trade, Transportation and Utilities reportedly increased by 2,500 positions from September to October of this year.
These recent numbers indicate that employment growth in the state has been broad based spanning several sectors. In fact, the only industries that showed employment losses from September to October were Construction and Manufacturing, although job employment losses in Manufacturing were considerably less then previous months. Growth in numerous sectors is encouraging, pointing to the strength of the Texas economy and its future potential.
While one month’s employment growth numbers do not indicate that rough economic times are completely over in the Lone Star State, they do mean that, unlike many other states, Texas can headline “good news” this month—a significant feat in the early stages of economic recovery. Although continued ups and downs can be expected, it is apparent that Texas is in a “last in, first out” position as the transition to recovery occurs.
posted @ 07:52 AM CST [link]
Friday, November 20, 2009
Hitting the Road!!
It is a rare day when a major company can announce a quarterly loss of over a billion dollars and have it regarded as good news, but General Motors (GM) managed to pull it off.
The auto industry is a highly important contributor to the nation’s economy and a source of employment for millions. In addition to the obvious manufacturing and retail trade sectors, the industry plays highly significant roles in numerous others sectors including energy, credit and finance, advertising, highway construction, repair services, freight hauling, recreation, recycling, business and professional services, and personal mobility. It has been estimated that every direct automotive manufacturing job accounts for approximately 6.6 spinoff jobs.
For most Americans, automobiles are the second most expensive possession (following housing). The majority of households own at least one, and they are engrained into many aspects of our personal and professional lives. Purchase decisions are normally tied to economic conditions and family prospects.
Because the auto industry is so significant to the American way of life, apprehension has been growing over the past few years in light of continuing losses and declines in market shares for domestic automakers. Following a dramatic drop in sales due to the recession and other factors, concerns about the industry’s future swelled to historic proportions in recent months.
In June, General Motors followed Chrysler into bankruptcy. It was an unprecedented move that would have been unimaginable a few years ago. It has resulted in the closure of dozens of facilities and the loss of more than 20,000 jobs. Many dealerships have also been eliminated. The situation eventually resulted in the government’s allocating billions of rescue or “bailout” dollars to keep the wheels turning and then adding even more funds to facilitate GM’s reorganization.
These moves were widely praised and condemned, and though far from a perfect solution, they undoubtedly served to help turn the industry around and provide greater confidence in its long-term sustainability. Understandably, buyers were reluctant to purchase from companies that might not be around for service, preserving trade-in value, parts availability, and other consumer priorities.
Now after bankruptcies, restructuring, and changes in management, signs of recovery are beginning to emerge. In July, Chrysler Financial, the main lending arm of the Chrysler Corporation, became the first auto-sector company to pay back loans from the Federal government. Ford Motor Company earned a $1 million profit over the July-September period and required no government assistance. The Ford strategy of establishing liquidity implemented a few years ago, allowed management through the crisis to preserve design and development advantages.
The Cash for Clunkers program this summer certainly stimulated Americans’ automotive appetites, and the desire for new vehicles is continuing and even growing. Sales of light-vehicles in October saw the best performance in a year excluding the Clunkers’ incentive month of August. Some industry leaders believe that total sales for the year’s final quarter could be stronger than the pre-Clunker level.
This week, General Motors, though still losing money, has stabilized sufficiently to announce plans to begin quarterly reimbursements of the billions of “second-chance” government grants it received years ahead of schedule. Even though GM is not faring as well as some of its competitors, the auto giant appears to be moving in the right direction.
Paying back some of the money it was loaned, however, is just one step for GM in its long pilgrimage of rehabilitation from the depths of heavy losses and poor marketplace decisions. Implementing additional changes in the corporate culture, getting executives and unions on the same page, creating value for shareholders, and attracting back consumers are still in the wings awaiting their moments on stage. With a positive and increasing bank balance consisting of billions of dollars in cash and marketable securities, GM now has sufficient funds not only to pay back its loans, but also to invest in design and production that may well increase its standing in worldwide sales.
The test of its comeback, however, will be the amount of profit the company is able to make from North American consumers. The company’s global market share rose three points in the third quarter to 11.9%, but its US share remained flat at 19.5%.
Smaller and mid-size cars appear to be the wave of GM’s future due to the pressures on manufacturers to do their part to reduce dependence on oil and decrease carbon-dioxide emissions. Many vehicles in GM’s line already compare favorably to cars from other manufacturers in terms of mileage and options.
Moreover, alternative-fueled vehicles are waiting their chance on the horizon. As one example of a returned interest in GM products, buyers are making bids on an electric car that has yet to be built. It’s the Chevy Volt which is supposed to be able to go 40 miles even before using any gasoline. It is due out next year.
As the nation’s economy recovers and people become better able to make large purchases, the demands for new designs and greater fuel efficiency in motor vehicles will increase and undoubtedly become the driving force of changes. The responsiveness of manufacturers to consumers’ desires will be the key to the level of success they will achieve in the future.
posted @ 07:33 AM CST [link]
Friday, November 13, 2009
“If You Build It….”
Every day, about 1,000 people are added to the Texas population. Of that number, many are born within our borders, but a significant percentage encompasses those who chose to relocate here purposefully. Most are seeking better opportunities for employment, education, or enrichment of their lives. Others are retiring to areas with favorable amenities and relatively low cost of living.
From 2000 to 2008, the population of Texas increased some 16.7%. Although this growth rate is only the fourth highest among the fastest-growing states, the addition of nearly 3.5 million individuals gives Texas the largest numerical gain among the nation’s states over that timeframe. In fact, it is remarkable that a state as large as Texas would rank so high on a percentage basis.
Naturally, some people leave Texas every year, but lately (according to a recent report by Relocation.com, an online consumer resource) the percentage moving into the state has been approximately 61% higher than those departing. In addition, the group, which studied moving patterns from 2007 through the first quarter of this year, noted that Texas was among the top four destination states.
Relocation.com also named four Texas metros among the 20 best cities in the US for a “fresh start.” Austin and Dallas-Fort Worth captured the first and second spots in that category, respectively, with Houston ranked 10th and San Antonio 15th. In fact, with the exception of El Paso, all major cities in the state had more people moving in than leaving over that 27-month period.
Historically, people sought out new beginnings in Texas because of the state’s abundant land and natural resources. More recently, however, individuals and businesses have been attracted to Texas because of its relatively strong economy and favorable business climate. The recession significantly encouraged migration to the state over the past two years as people looked for chances to improve their standard of living in Texas, which was not hit as hard economically as many other areas across the country.
The population increases, while changing the face of Texas, are also presenting numerous challenges and opportunities. With Texas attracting so many new people, the need for housing will likely expand, a positive predictor for the real estate industry. Population growth is, of course, the primary determinant of housing demand, and we have not been building enough to keep up with recent gains; in other words, we are now working into the surplus.
The inflow of new residents will serve the state well in the future. While the recent recession and job losses have freed up many talented potential workers, the long-term trend is toward workforce constraints. As the large baby boom generation begins to retire, many areas will be facing a shortage of qualified employees. This pattern, in turn, will lead some companies to look to other areas as they expand or relocate. The current wave of new Texans can help the state maintain an advantage in this area.
Texas is also working on other fronts to ensure ongoing workforce quality. Some $90 million has been provided by the Texas Legislature to assist incumbent workers, as well as those seeking employment, to acquire vital workplace skills. Since the inception of the Skills Development Fund in 1996, nearly 76,200 jobs have been created and the abilities of more than 208,600 workers have been upgraded. To avoid skilled worker shortages in the future, businesses must continue to create and enhance quality training programs directed toward the industry needs anticipated for tomorrow.
Forecasts call for continued population growth across Texas for the foreseeable future. This increase brings many benefits, but also issues in terms of providing the necessary infrastructure, educational opportunities, health care, and public safety to support an expanded citizenry. The way we handle the new challenges and opportunities wrought by these circumstances may well determine the state’s future economic vitality.
My obsession with baseball compels me to repeat the words of “The Voice” in the movie Field of Dreams – “If you build it, they will come.” In Texas, we have built the right environment for businesses to flourish, with a healthy business climate and powerful economic development tools. The companies have come and with them the people seeking their fortunes. We have built it, and here they come. Now, we have to build the other things they need to prosper.
posted @ 08:14 AM CST [link]
Friday, November 6, 2009
Finally!!!! – But….
Is the recession over? Officially, the answer is “yes,” even if it doesn’t feel like it yet. A recession is more or less officially defined as two consecutive quarters of negative gross domestic product (GDP). The numbers recently released by the Commerce Department note that the US economy grew at a 3.5% pace from July through September. This report clearly signals that the slippage has stopped and the direction is now positive. (The National Bureau of Economic Research also votes on when recessions and recoveries start; I suspect the timing will be fairly consistent.)
Based on the normal standard, our economy has stepped back from the dark brink of the economic abyss—the deepest we have experienced in more than a generation—and we are now positioned to regain the ground we have been losing since the recession began in December 2007. The third-quarter turnaround marked the first overall increase in our economy since spring last year, when we had a brief uptick. More specifically, it has halted four straight quarters of contracting economic activity.
The growth, of course, was largely fueled by the public’s use of the government’s offering of funds for cars and homes. Partially as a result of the government opening its coffers, sales of consumer big-ticket manufactured goods jumped some 22.3% in the third quarter. Consumers were responsible for about 70% of the overall expansion. Spending on housing (which technically counts as investment in the GDP accounts) also rose by 23.4% during this three-month period.
Among the other contributing factors in the GDP third quarter growth rate was the brisk upswing in federal spending, some 7.9%. And that was on top of the 11.4% growth rate during the April-June quarter. Businesses also hiked their expenditures on equipment and software by about 1.1%, which was the first positive movement in that measure in almost two years. Outlays for physical plants continued to decline.
Another boost to the GDP was the increase in exports of US products driven by both the cheaper dollar (which made the goods more attractive to consumers in Asia, Europe, and various other parts of the world) and the beginnings of recovery in some parts of the world. On the other hand, imports rose even more, which was a dampening factor.
Even so, we aren’t quite out of the woods. Lending by banks is still somewhat depressed and many businesses are continuing to experience difficulties in financing new ventures. Last month, confidence in the economy fell primarily because of the employment situation. Thousands are still losing their jobs and the prospects for substantial hiring appear to be a few months away. With an average work week of only 33 hours, GDP can expand quite a bit before the economy starts to add notable numbers of jobs.
In addition, while consumer spending on goods and services (the largest facet of GDP) was more optimistic than in months past, it is nevertheless not expected to achieve sustained high growth levels immediately. The primary reason for this situation is the amount of available discretionary income. Without an anticipated influx of money, many consumers simply don’t have the capacity to ramp up as much as they might like. As a result, it will likely be more difficult for businesses to keep the future pace of recovery at the third quarter level.
As jobs open up in the future, household incomes will rise and spending patterns will become more positive. We will probably see a few quarters of slow growth before momentum kicks in, but it definitely will. How often does it happen in economic cycles? Always!!!
posted @ 08:10 AM CST [link]