Birmingham Business Journal and 2011 Forecast

The Birmingham Business Journal and several key corporate sponsors played host to the Economic Forecast update this week held at the Harbert Center. Noted speakers included Dr. Sam Addy of the Center for Business and Economic Research at the University of Alabama, Dr. Andrea Rauterkus, Assistant Professor of Finance at UAB, Dr. Chris Westley, Associate Professor at Jacksonville, and Tom Nelson, economic analyst for Vulcan Materials. Scholarly leaders they are, and let me share with you some of their insight for what 2011 holds for us.


Firstly, while optimistic, the group remains cautious and warned to take improvements in the market in the proper context. The recession was in fact a long time coming, and due to our behaviors. The slow structural change has been frustrating, and corrections have been slowing due to incessant government interventions. There was a collective agreement that the corrections need to occur to right the wrongs of the past and move us toward sustainable growth.

Since the recession, saving has increased and borrowers are starting to behave. (I am talking individual here, certainly not US Government.) This is the true heart of wealth creation and it is really just that simple. It does take the hard work of self discipline and the high need for self control and delayed gratification. Unfortunately, these are not common terms at the average American dinner table. The Business Cycle is built from the simple notion that sustainable growth is born in a person who saves so that they can invest in a company. That company then builds more stuff that we can buy. Buy more of our stuff, and they can hire more people.

Wealth has become valued more realistically of late, and we are moving into a new normal. The GDP is expected to grow at about 3.5% and employment at only 1.4% or 2 million jobs nationally. The public sector is starting to realize that it needs to contribute, and not just consume to get us back on track. This is a key realization as policy makers search for what is optimal and sustainable to address what we see as a decline of the middle class. The need to address and support small business was a message laced through all four presenters’ comments. Dr. Addy was keen to remind the audience that all large companies were indeed at once a small business. He gave the challenge to the audience to look at the system which creates the dynamic that allows the growth of small business.

So which sector will lead us into this growth? According to the group certainly healthcare will continue to grow both locally and nationally, and it will add jobs. Education will continue to be challenged by the limits of state financial revenues, and interestingly manufacturing will grow about 5%, but not add any measurable amount of jobs. Manufacturing is learning to do its work better, and as the daily reports of downsizing show, they are doing it with fewer workers.

The banking sector will continue to compete for a smaller group of potential borrowers, and market indicators are pointing to a continued rise in interest rates. Many countries are attempting growth by currency devaluation, and they all agreed that this will prolong any recovery in the market place. On a more local level, all discussed the need for a community bank that takes on a personal banker role to small business. This will open the door to loans based on tangible business models, not just credit models, and a keep a needed check on the veracity of loan access and payback.

What about the debt? According to the US Debt Clock (www.usdebtclock.org) we are 14 Trillion in debt with 1 Trillion owed to China. We owe Japan nearly that same amount, and the United Kingdom half a Trillion. This is clearly a very big number, and the debt clock is pretty scary let me tell you. I am really a bit sorry that I found it, and it is truly mesmerizing to sit and watch these astronomical numbers click away glibly before your very eyes. It is truly stunning to see in real time our debt, and how it breaks down to a per tax payer burden of about $45,000. By the way, only 1 in 3 pay taxes, and you can see that on the debt clock too. Next time you hear someone talking about “spreading the responsibility” or “everyone doing their fair share” to support this bail out or that bail out, remember that fine point.

All in all, better to know the facts as you make decisions going forward. Yes, 2010 was a disappointing year, but the trough occurred in June of 2009 actually. Our pick up will sputter, and our speakers maintained that the outlook should improve by the second half of this year. So hang in and hang on as we are not out of the woods just yet.

Birmingham Economic Forecast 2010

I recently attended the 2010 Economic Forecast presented by the Birmingham Business Journal and hosted by Samford University’s Brock School of Business. Brought together for this event was an esteemed panel of guests to include Mickey Gee, Executive-in-Residence at UAB, Cynthia Lohrke, Professor at the Brock School of Business, John Norris, Managing Director for Oakworth Capital Bank, and Jacksonville University Associate Professor of Economics, Christopher Westley. This panel fielded a variety of questions concerning opinions and predictions of the Birmingham marketplace for 2010. To follow is a summary.

Consumer confidence appears to be rising and is expected to continue into 2010. Of course this is good news for the retail industry, and December numbers will be out soon to show exactly how 2009 finished. In general, retail department stores have been seen as surviving the holiday season by creating value as opposed to deep discounting as a manner of creating sales for the holiday season. It was noted that 74% of the US economy is driven by consumer spending, and has seen a low of 61% last summer. The drop in consumer spending was due to the increase in unemployment, and decline in consumer confidence. Unemployment for the state has hovered around 10.2% and 9.9% for Birmingham. Some areas of Alabama are experiencing real unemployment of upwards to 25%. Interestingly 16-17% of workers at this time are part-time employees. News that Joe Consumer is pulling out of this tail spin is great to hear. But, a move to full employment according to this group will be driven by the part-time workers that shift back to full-time employment first, followed by hiring of the unemployed. Any businesses that support the Temporary job sector should be a good bet for growth in this type of marketplace. The company ManPower was sited as one of the top ten businesses in 2009. During this time of employment unrest there does seem to be a silver lining. Baby Boomers are not taking on more debt during this recession, and the savings rate has started to increase.

A discussion of the role of Federal stimulus dollars that may find its way to Alabama centered on recommendations as to where funds should be allocated. Most agreed that there has been no real stimulus money impact as yet, with most of the funding going toward government stabilization. In specific, the monies have gone to government expenditures for education, health and human services, and even 4% to transportation (considered a non-business expense). Stimulus dollars that go to support large companies with government contracts will prove to be a frustrating competitive playing field for any small business that competes with them. The real need for use of these funds is to fund real business expenditures to drive the economy along. Most on the panel agreed that now is the time to invest in innovation and to take the time to build strong strategy. In particular technology is strong for software development, and it was interesting to learn that we have an iphone developer right here in Alabama. It has been suggested that there is a need to invest in wireless and broadband infrastructure. In general, most agreed that the stimulus money has not altered the economy that much, just simply moved the demand curve forward. Eventually, the same costs will still be due. The 787 billion dollars that have been tagged are actually slated to be spent this year, not last year, which just so happens to be an election year.

Though Washington has released monies to support small business loans, access to these funds will continue to be restrictive with some loosening of credit by the end of 2010. Amazingly, it was stated that private sector job growth has been at zero since 2001. Any growth seen has been produced by “government growth” as created by what has been called the warfare state and the welfare state. The concern here is that this is not real capital creation, and is most likely not sustainable.

Opinions were raised with respect to the Jefferson County Business License tax as a revenue source for Jefferson County. Essentially, the point was made that most counties that have an occupational tax do not do well. With regard to business friendly strategy, the panel reminded us that a tax increase of 1% is still a tax increase. Of course the full impact of the healthcare bill remains to be seen too.

So how does a business owner continue to break ahead of the pack and earn the biggest gains as we pull out of the recession? The good old fashioned way: Customer Service, reliable experience, and a heavy dose of ethics. One certain area for growth in the near future is a demand for graduate level education. This higher level of education will help create and drive technology growth, energy growth (specifically green), healthcare industry and technology (contingent on the healthcare bill outcome), and most fascinating to this writer is the recommended need to learn Mandarin as a second language. Bottom-line for Alabama: We need to have academic specialization, think globally, and bring the business opportunity and job creation home. We will need workers with high knowledge and critical thinking skills. Not surprisingly there is a direct correlation between education levels and per capita income.

As you think on some of these opinions and thoughts concerning developing and changing business here in Alabama, ask yourself how this applies to your position. Are you using knowledge to leverage your position? Are you adaptive to technology? Does your strategy still embrace and compliment your mission? Do you have a corporate culture which leverages the least costly business strategy available which is concrete customer service? Lastly, are you involved with your City council, local government and Chamber of Commerce? If not, then start today. The positive interaction between your business and these leadership entities will be the driving force behind strong economic development.

Good customer service is free, and is as simple to implement as a change in attitude. So remember, take care of your customers, or someone else will.