EIDSON & PARTNERS

Why this recession will last longer than expected

The Bureau of Labor Statistics' July 2 Economic Situation Summary surprised a lot of people: investors, pundits and politicos alike. No green sprouts here.

The facts are clear:

• Total June job losses reversed a recent trend, posting a staggering loss of 467,000 jobs.
• Equally troubling is the decline in weekly hours of work.

This really should not be a surprise. The larger story had already been reported in an excellent article on June 12. Reporting in USAToday, Dennis Cauchon turned in a well researched story that points to the real problem. Unemployment is not the major story.

IT'S THE UNDEREMPLOYMENT, STUPID.

- The hours worked per week in May (then June) represent record lows (data from 1964 forward).
- Weekly earnings for private sector jobs are down since 1Q09.
- Cauchon reports that businesses cut wages by 6.2% in the first quarter. He quotes Laura Sejen of Watson Wyatt as, "this recession is unlike any since the Depression."

No doubt, this recession will be protracted. Before there can a real turnaround, the economy will have to grow enough to reverse both the underemployment, and then the unemployment.

MY PREDICTIONS:

1. High unemployment: 10+% for the next 24 months.

2. Stock market: stagnant with weak earnings for 24 months

3. Commodity prices: soft with the exception of energy.

4. Long term interest rates: rising based on US deficits.

Game-Changing Innovation for Developing Countries: Part 1 of 2

On April 9th, the Climate Change Challenge announced their $75,000 prize winner, the Kyoto Box, an inexpensive solar-powered cooker.

The $5 cooker uses sunlight to cook food and boil water. It is truly revolutionary for the estimated 3 billion people who cook with firewood. The cooker is made of two cardboard boxes, one inside the other covered with acrylic. The addition of insulation (straw), black paint and foil raises the temperature enough to cook or boil liquids. Manufacturing and distribution costs are expected to be low.

The list of benefits include:

- Cooking without consuming fuel or firewood,

- Boiling 10 liters of water in two hours which helps reduce disease,

- An estimated saving of two metric tons of carbon emissions per family annually,

- A significant reduction in deforestation, and

- Significant reduction in the time devoted to gathering firewood.

The inventor, Jon Bohmer, had been working for years on high-tech solar concentrators. He noted, "it's all about scaling it up. There's no point in creating something that can only help a few million people. The needs are universal - everyone needs to cook."

Sponsored by Hewlett-Packard, the competition was hosted by Financial Times and the Forum for the Future.

A Balance Sheet Recession & What's Next

Both the New York Times and NPR have covered the story of a "Balance Sheet Recession" using Japan's experience from the 1990s.

Richard Koo, chief economist at the Nomura Research Institute, summarizes the Japanese experience in the 1990s as not a recession, but a Balance Sheet recession. That is, a recession driven by consumers and businesses going about the process of cleaning their individual balance sheets.

In his NPR interview, Koo notes that when the real estate bubble of the 1980s burst, property values plummeted 87 percent from the peak nationwide. Counting the value of real estate and stocks, Japan lost wealth equivalent to three years' worth of gross domestic product. It was "just about the largest loss of wealth in human history in peacetime," Koo says.

Hiroko Tabuchi's NYTimes article points out that, "As recession-wary Americans adapt to a new frugality, Japan offers a peek at how (consumer) thrift can take lasting hold of a consumer society, to a disastrous effect"

Between 2001 and 2007, per capita consumer spending rose only .2 percent.

Japan eventually pulled itself out of the Lost Decade of the 1990s, thanks in part to a boom in exports to the US and China. But that might not be the only engine of recovery.

As suggested, but unstated, in President Obama's Feb. 24 Address to Congress, it seems that the real engine to pull an economy out of a Balance Sheet Recession is exactly what Japan did -- intense, consistent public spending.

That's not the solution I was hoping for.

An Alternative To Layoffs

Duncan Aviation, a premier US corporate jet maintenance company headquartered in Lincoln, NE, announced a reduction in hours and salaries - not a layoff - as a way to deal with the current business downturn.

The Lincoln Journal Star story from January 27th is followed by more than 40 comments, primarily comments by employees such as:

- "This seems like a reasonable solution, and a very honest business practice, ensuring the employees maintain a somewhat steady income and importantly, benefits. It is refreshing to see an approach other than cutting jobs."

- "At least the company is trying to do what is right, kudos for that. Better than some of the companies that just show employees the door."

- "High praise and many kudos to Duncan. I am proud to see a Company as Duncan take a huge step to keep their employees."

- "Kudos to Duncan for watching out for their employees!"

- "We would rather have the wage reduction and the 32-hour workweek as opposed to being unemployed with no benefits." (wife of a Duncan employee)

Everyone wins in this deal.

A Detailed View of the Inauguration

The link below shows the Inauguration of President Obama in unbelievable detail. The image is a 1474 megapixel photo of the inauguration built from more than 200 photos. The navigation tools allow you to zoom in on snoozing Justices and pick out details of tie pins.

Gigapan

A Turnaround Strategy That Worked

MacDonald's is one of two Dow Jones Industrial Average companies that posted a share price gain for 2008. This success is based on a comprehensive plan that began in 2003, when the company posted its first quarterly loss.

 Andrew Martin’s article in the today’s NYTimes details:

- A change in mission “from the world's best quick-service restaurant" to "our customers' favorite place and way to eat". The mission statement translated into every aspect of the business and is well articulated in the “I’m Loving It” ads.

- A change in investment strategy from expansion to a focus on improved sales per store

- A change in menu strategy that replaced supersizing with healthier options and all-white chicken.

- An addition of premium coffee products to compete with Starbucks and the new offerings from C stores.

- A renewed focus on cleanliness and service.

- And, a focus on updated facilities including drive-throughs. 60 percent of the profit passes through a window.

The genius of this turnaround is the customer focus of "being our customers' favorite place and way to eat".

What would happen in your business if you focused on being your customers' favorite.................?

Christmas Story

In what began in 1992 as one man's dream and a heartfelt gesture, Worcester Wreath Company initiated the Arlington National Cemetery project - donating over 5000 wreaths each year to adorn the headstones of our fallen veterans.

It begins with a hand-made wreath, but Worcester Wreath Company President Morrill Worcester is quick to remind everyone who will listen, that "it takes a lot of hands and a lot of hearts to make this happen each year. It is our way of giving something back, because without the sacrifices of our Veterans, and their families, we wouldn't be in a position to do any of this."

Reported by Wreaths Across America

Electric Vehicles & The Detroit Bailout

This week I  attended the Electric Drive Transportation Association's (EDTA) Conference & Exposition in DC.

Fuel cell, hybrid, battery and plug-in technologies were exhibited along with vehicles of every size. A few industrial electric vehicles slightly larger than golf carts were present along with Smith Electric Vehicle's 19,500 lb. GVW, all-electric, plug-in delivery truck. It's hard to imagine a vehicle the size of a UPS truck with zero emissions, virtually no noise and a range of 140 miles.

The breadth of the development effort in this space is impressive. In addition to the heavily reported Chevrolet Volt and Tesla's sports coupe, there are very advanced Mitsubishi and Nissan all-electric cars in development along with Miles Electric Vehicle's five-passenger car built on a chassis from China.

Better Place reported on their efforts to deploy electric recharging sites and pre-charged battery swap facilities that function as service stations for electric vehicles. Hawaii and several Bay Area communities have committed to the deployment of recharging facilities. Internationally, Israel, Denmark and Australia are moving forward with electric vehicle recharging facilities.

By recharging electric vehicles at off-peak hours, the carbon footprint and cost of vehicle operation are dramatically reduced versus internal combustion engines.

On December 2nd, EDTA hosted a Ride & Drive Event on 9th Street for conference participants to drive and ride in these vehicles. The irony is that the Drive & Ride took place just blocks from the Capitol -- as the Big Three automakers pleaded their case for a bailout, again, before Congress.

The Housing Crisis & An Uptick in First-Time Buyers

As the incoming Obama administration weighs the policy options for the economy and the housing crisis, the new team's economic advisers should study the recently released National Association of Realtors (NAR) survey of home buyers.

- As a percentage of all home buyers, first-time home buyers increased slightly through mid 2008.
- These buyers are younger, made larger down payments and plan to stay in their home much longer than the prior year's first-time buyers.

Focusing initiatives on first-time buyers might be the single most effective policy option:
1. First-time buyers have much more flexibility because they are not tied to an existing home obligation.
2. Real estate is the ultimate trade up market. By addressing the market at its base, this approach provides a long term benefit to the entire home market – helping to stabilize prices.
3. If we define the current economic crisis as a seriously over-leveraged economy, then this approach can be a small effort to help build equity in single family homes.

The fundamental of this approach is to leverage the market forces that can help. Nurturing first time buyers, who are NOT over-leveraged, could be the right policy at the the right.

Word for the day -- Recessionista

Business Week's Christopher Palmeri reports that the word recessionista is making a come back.

Wordspy.com defines recessionista as "a person who dresses stylishly on a tight budget."

Wordspy also notes that the number one term related to recessionista is conspicuous austerity -- "2. a lifestyle in which a person openly and deliberately uses goods and services that convey a lower socioeconomic status."

Palmeri notes year-to-date sales increases of 6% and 15% respectively for Salvation Army and Goodwill stores.

It is hard to believe that just four months ago (June), we were blogging about food and fuel price increases.