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Caution = Inertia; Cautious Optimism Still Steps Forward

After some hope from the manufacturing sector that continued this month,

By Dr. Joe Webb
Published: September 6, 2009

After some hope from the manufacturing sector that continued this month, the non-manufacturing sector moved up a little, but still indicates contraction at these levels. Our stock market indicator, the NASDAQ Composite, just went sideways. That's still down more than 25% since last month's recovery summary. Proprietors' income, the measure of small business health, is released quarterly; it was revised upward by $6 billion, narrowing the decline from the prior reading to less than 1%.

The manufacturing improvement is quite welcome, but its origins appear to be just for inventory replacement. Their customers cut back aggressively in an attempt to save cash and not be stuck with slow-moving goods, and are now starting to fill in what they need. This does not appear to be an increase that indicates a general rise in demand. The imports index for manufacturing went down slightly, though it is still a little above where it started at the recession start. The weak dollar makes getting raw materials needed in manufacturing more expensive. While it can “help” in making U.S. goods more attractively priced overseas (or just a short drive north or south of our borders), increased costs of materials are part of the equation that seems to be forgotten.

We just took a step sideways over the last month. What's so strange is that movements in a sideways direction are viewed as signs of strength or growth, or “building a base” from which the economy can grow. “Less bad” is not “more good”: it's still bad. It's hard to run on muddy ground. You have to look at the components of the various indices to have an understanding of the economic dilemma. As I wrote last week, the business press, who should know better, insists on reporting only the top line of economic data, and rarely gets past the first paragraph of press releases. The ISM manufacturing report had warning signs, especially about inflation.

Last Friday's unemployment report showed the unemployment rate at 9.7%. Payrolls dropped, again, but somehow it was in the “less bad” category. The household survey, which includes self employment, and is the survey used to calculate the unemployment rate, but is almost never referred to in press reports, showed the employed workforce dropped by 392,000 and that the number of unemployed went up by 466,000. As far as the 9.7% rate, remember that it would have been 9.6% last month had the workforce not dropped like it did last month. We are now at the total number of employed workers that we had in December 2003

U-6, the broadest measure of unemployment and underemployment that includes discourages and underemployed workers, which requires reporters to make two additional mouse clicks on the Bureau of Labor Statistics site to see, was 16.5% unadjusted and 16.8% seasonally adjusted.

Productivity was raised up the other day. As long as that keeps happening and GDP growth is less than that, unemployment will keep worsening, even if the economy manages to grow. Unfortunately, employers have every reason to keep shedding workers out of practicality and also in nebulous but justified fears of pending regulations and taxes. There are some who say that businesses can “only cut so much.” That's not true; they can cut until they're out of business, or cut until they merge with another business, or make some other strategic decision. Don't fall for arguments like “pent-up” demand. Recessions change purchase habits, especially when technology keeps changing and providing alternatives to prior patterns of consumption.

What's it all mean? There's great skepticism about what lies ahead, still. Instead of being cautiously optimistic, it appears that businesses are just cautious. Being cautious alone means that the forces of inertia are entrenched. Cautious optimists work to move forward, not content just sit in the same place.

Every business needs sales, prospects, and better relationships with their clients. This is a time to go out and create business, not to get business. It's right at the heart of why people use print and all media. That's still the place to focus. When client companies are still in a hunker-down mode, they need outside resources to help them with those tasks in a proactive way. Newness still works. Sell the effects, not the process. Selling just sizzle ignores the rest of the meal.

Dr. Joe Webb is one of the graphic arts industry's best-known consultants, forecasters, and commentators. He is the director of WhatTheyThink.com's Economics and Research Center.

What do you think? Please send feedback to Dr. Joe by emailing him at drjoe@whattheythink.com.

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