A Couple of Notes on the Economy

Scott Francis
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This week I’ve seen a few articles at the global, national, and local level about the economy.  McKinsey has a new report out with their global economic conditions survey results.  You have to register for the report. The key finding is:
Now, for the first time in a year, more respondents expect their companies’ profits to rise than fall in the near term. Product development and long-term planning are high priorities for many companies, and most are optimistic about their prospects in the longer term.
The general sense is that panic has receded to the background, and a new cautious optimism has taken hold.  I like the phrase used in the report – “an environment less comfortable than the one they knew in the pre-crisis world” – which is pretty much exactly the way I would phrase it for many of the companies that we work with. Interestingly – more than half of executives surveyed support government intervention to support the various economies.  This isn’t necessarily what you would expect the survey results to show if you watch CNBC or Fox News.  As is often the case, executives’ outlook for their own companies is better than their outlook for the economy generally (this is usually true in good economies as well). The key graph for BP3’s business was “Exhibit 4: What matters most.”  It shows that Cutting operational costs is the #1 priority for executives globally.  In fact, 4 of the first 5 priorities have to do with cutting costs and business agility.  These priorities line up beautifully with what BPM can do to improve their businesses. Also, the percentage of respondents saying that they would decrease their workforce in the next six months has dropped from 50% or so to less than 30% since March.  Also,
Respondents from almost three-quarters of the companies expect them to be in a stronger competitive position five years from now than they were before September 2008.
There is a core, underlying optimism in our global corporations that, I believe, will eventually propel the economy forward. Of course, among startups, there appears to be even more optimism, in my judgment.  Compared to last year, the tone I hear from entrepreneurs is quite a bit more positive. Locally in Austin, it seems that we are just starting to feel the pinch of the economic turmoil. We don’t get a lot of sympathy from other parts of the US, as the local unemployment rate has now reached 7.2%, compared to 4.7% one year ago.  But unlike many parts of the country, net job losses here are only .9%, so a significant percentage of the unemployment number is likely due to growth in the available labor force. Statewide, Texas is at 8%, and nationally the US average is 9.7%.  As with many parts of the country, Austin’s manufacturing and construction businesses have seen a lot of job losses. Bucking these trends, we’ve added one person to our team recently, and we hope to hire another 1 or 2 employees before the end of the year – but like the McKinsey survey results, we are cautiously optimistic and we’re being careful in our approach to growth.  The market may be favoring BPM and other efficiency investments, but investments are being made very conservatively across the board.

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  • One thing is sure, all the talk about a recovery has at least diminished the angst – and this is probably one of the key influences in how the recovery will manifest itself hereon. I might sound a little naive when I say this, but I believe that the panic and fear of recession has done more damage than the recession itself. People, orgs have allowed knee-jerk reactions more to the anxiety than as a direct result of ression, thereby fanning the extent of the recession itself – maybe even making it worse than it really needed to be. Perhaps this is one of the reasons why respondants have shown more confidence in the performance of their own companies than overall economy.

  • One thing is sure, all the talk about a recovery has at least diminished the angst – and this is probably one of the key influences in how the recovery will manifest itself hereon. I might sound a little naive when I say this, but I believe that the panic and fear of recession has done more damage than the recession itself. People, orgs have allowed knee-jerk reactions more to the anxiety than as a direct result of ression, thereby fanning the extent of the recession itself – maybe even making it worse than it really needed to be. Perhaps this is one of the reasons why respondants have shown more confidence in the performance of their own companies than overall economy.

  • Well, that and the fact that banks (in the US at least) have come out of the deep freeze. Panic was a big part of the problem, but you’re right that panic can lead to very real economic consequences that hurt business.

  • Well, that and the fact that banks (in the US at least) have come out of the deep freeze. Panic was a big part of the problem, but you’re right that panic can lead to very real economic consequences that hurt business.