Is an ‘Insurance’ Rate Cut Necessary?
October 30th, 2007 | Posted by innovCould Oct. 31 tell a tale of two economies? On the same day that Federal Reserve policymakers will debate a rate cut to avert a possible U.S. recession, we expect an advance report on third-quarter gross domestic product (GDP) that will confirm another quarter of solid growth. The Fed will be discussing recession insurance as the U.S. and global economies continue to exhibit solid growth.
The U.S. economy may or may not be poised for a slowdown that requires a preemptive policy strike, but there will be little evidence of weakness in the third-quarter GDP report. Both nominal (unadjusted for inflation) and real (adjusted) GDP growth should subside in the third quarter from the outsize gain in the second quarter, but the decrease will prove modest. The source data we use for our third-quarter forecast leaves only limited downside risk in our expectation of 3.4% real growth and a 1% gain in the report’s chain price index, a widely followed inflation measure.
Source data thus far are also showing little further slowing as we enter the fourth quarter despite fears of a downturn, and the chain price index is poised for a bounce in the fourth quarter and the first quarter of next year.
The solid third-quarter GDP outlook is driven by the lack of any meaningful slowing in the monthly consumption spending and retail sales figures through September. Nominal consumption grew above trend in the first and second quarters and has corrected modestly, but real spending has shown inverse swings with gasoline prices, with an outright boost in the third quarter as gasoline prices subsided.
Perhaps the biggest downside risk to growth beyond the third quarter comes from the business sector, as talk of credit turmoil may have prompted a wave of business caution that could curtail fourth-quarter spending. We do expect a moderation in business fixed-investment growth in the third quarter following the pop in the second. The outlook for the fourth quarter remains uncertain.
But there is little evidence in available source data for the two business fixed-investment subcomponents—equipment and software spending, and nonresidential construction—that a significant slowdown is underway. The business construction figures soared in the second quarter and remained solid in the construction spending reports through August, and the factory goods figures imply a 2% to 3% third-quarter real gain in equipment and software spending that could easily be repeated in the fourth quarter.
Headline orders weakness in August and September helped to sustain market fear of a downside surprise in the equipment and software figures in the fourth quarter. Yet temporary downswings in these volatile figures during tumultuous periods such as August and September are hardly unusual. And third-quarter earnings reports from many of the high-tech firms have bucked fears of a pullback in this barometer of business investment. The moderation in various factory sentiment indicators has proven modest thus far as well, and capital spending plans gauged in these surveys have shown little reaction to market turmoil.
The inventory component of business investment provides another downside risk to GDP beyond the third quarter, stemming from a possible surge in business sector pessimism. But since the inventory downturn of late 2006 and early 2007 took much of the slack out of inventories, there is limited room for a further downswing in the fourth quarter this year. For the third quarter data, a fairly flat inventory reading is already in the cards given the monthly business inventory reports through August.
Of course the outlook for residential construction remains bleak, and we have factored in jumbo 20% rates of decline in the third and fourth quarters that easily reflect the weakness in available source data. As we often note, the single-family residential construction sector is only 3% of GDP, so weakness here has little potential, on its own, to have an impact on overall GDP growth.
The key to housing sector significance for the overall business cycle and GDP remains how the slump will ultimately affect consumers’ willingness to spend on goods and services.
And finally, the U.S. net export figures are likely to provide a solid floor for GDP growth over the foreseeable future, given the combination of robust world economic growth and a plummeting dollar. Soaring oil prices will again boost the nominal trade gap figures, though real trade is improving at a dramatic rate through the most recent trade deficit report, and this pattern should continue.
Though global trade tends to be more sensitive to world economic growth than exchange rates, the sheer magnitude of the recent dollar downturn suggests substantial upside risk to U.S. export growth as we enter 2008, as well as restraint in real import growth.
The outsized overshoot of the quarterly GDP chain price index in the first quarter, and additional gain in the second, allowed a lull in the third quarter that will carry into the fourth. This mostly reflects that domestic gasoline prices soared through the first half of the year but then paused through September, while oil prices were restrained through the first half of the year but soared in the third quarter. Since imports enter the GDP calculation as a “negative” entry, surging oil prices temporarily depress the quarterly chain price figures now that they are not translating to gasoline price increases. Of course, this good luck won’t last much longer.
We expect that soaring commodity prices should start having a significant impact on GDP chain price gains by the first quarter of 2008. Given rapid growth in wage costs and tightening global capacity constraints, the risk is that the recent lull in many of the “core” inflation measures will dissipate as well. (Core inflation measures exclude volatile food and energy prices.) Though the Fed sets its inflation goals in terms of a core measure because it is less volatile and hence a better tool for rhetorical purposes, it is overall inflation that matters for the economy and the Fed, and there is little evidence that U.S. inflation is subsiding from the general 3% pace thus far in the expansion. Indeed, inflation as measured by the consumer price index is now poised to return to the 3% to 4% range typical of the high-growth years of this expansion.
Of course if the Fed announces a Halloween easing, as we now assume, it will be addressing the downside risk of a slowing economy even if policymakers see the risk as small. The parallel of the current circumstance to the Fed “insurance” easing in the aftermath of the Long-Term Capital Management crisis in 1998 and the stock market crash of 1987 are clear. In both cases, though the Fed eased in response to the perceived near-term “risk” of a slowdown, the policy easings ultimately contributed to a boost in growth and inflation over the ensuing three years.
Though we believe that the Fed is likely committed to a policy easing at the Halloween FOMC meeting, detractors will have plenty of material to support the view that an unchanged policy stance would be the better choice.
Out of the Corner and On to Your Team
October 19th, 2007 | Posted by innovLast week after I finished speaking at a sales conference, a salesman pulled me aside and whispered: “What should I do? The president of my company just assigned his girlfriend to work on my sales team. She doesn’t have any sales experience—and doesn’t care.” I call this situation “the Dunce Bomb” because if you handle it incorrectly, you could blow up your relationships with your accounts.
Here are some ideas on how to deal with a Dunce on your selling team. Remember, a Dunce can be male or female, romantically involved with a co-worker or not. My strategies apply for any Dunce you may have to deal with.
1. Have a frank talk with your boss about expectations. Ask what role he or she envisions for the Dunce. Perhaps you can get the Dunce assigned to one of those projects everyone always says would be a good idea but no one ever has time for, like cold calling a new territory, or trailblazing a new product line.
Alternatively, maybe you can sell your boss on reassigning the Dunce to another department, where the Dunce’s performance is not so easily measured. Remind your boss that direct sales is a tough assignment for someone who isn’t properly trained.
2. Keep an eye on your sales numbers. Remember the expression, “This too shall pass,” and when the Dunce is no longer working on your team, it’s important that your numbers be on track. Your boss may not offer much sympathy if your numbers are down when he or she is nursing a broken heart from the Dunce’s departure.
3. Don’t waste your time repeating information to the Dunce. I learned this from watching the salesman take a call from the Dunce in front of me. He spoke to the Dunce as if she were a child, repeating simple words and commands. The Dunce still didn’t get what the salesman was saying. If the Dunce doesn’t understand what you say, force yourself to drop it and get back to selling.
4. Do not turn over or share your key accounts with the Dunce. I mention this because the salesman who complained to me told me that he had done just that. The salesman thought he was doing the boss or the Dunce a favor, but I bet the salesman will regret that move because the Dunce could easily damage them. You worked hard to win your accounts and build relationships with the key buyers; don’t risk your investment. Try to get the Dunce assigned to a separate set of customers, so the Dunce’s performance is easy for all to measure.
5. Look for the opportunity. Get to know the Dunce to learn about his experience and plans. Who knows? Perhaps the Dunce has a deep knowledge of a business that could help you. Or maybe the Dunce has a gift for making people feel welcome, a great memory, or great connections within the local community.
If you can, leverage the Dunce’s experience and make him useful, instead of a potential waste of time and a threat to your sales. Just don’t spend too much of your time or energy on what may be a temporary assignment for the Dunce.
6. Force yourself to overlook any pay or favor inequities. Since the Dunce is your boss’s current favorite, don’t be surprised if the Dunce’s pay plan is juicier than your compensation plan. The Dunce may also get to come in later, leave earlier, take longer lunches, and receive other perks.
Console yourself that you are building your career; the Dunce is just milking a personal relationship. These scenarios have a way of working themselves out over time.
If you find a Dunce has replaced one of your key customers with another, the same basic rules apply—keep your eye on the business, look for the opportunities, and keep selling. Perhaps you could take them both out to a meal, which would give you access to your customer too.
A career in selling is like getting a PhD in human psychology. Don’t get distracted by the drama of having a Dunce on the scene. Instead, keep your focus on your customers. Happy selling!
Is the Credit Crunch Weighing on Jobs?
October 18th, 2007 | Posted by innovAre ill winds from the credit crunch starting to gust through the U.S. labor market? A bounce in the government’s weekly initial jobless claims report released Oct. 18, covering the number of Americans filing for first-time unemployment benefits, may have aggravated credit-market worries on Wall Street.
Investors already have been spooked this week by news of big earnings shortfalls at banks such as Citigroup (C) and Bank of America (BAC), the creation of the M-LEC superfund to prop up the commercial paper market, and a Beige Book report from the Federal Reserve that seemed to dwell on downside credit-related risks to the economy. But it would be premature to suggest that this week’s increase in claims signals significant weakness ahead for the U.S. jobs picture.
First, let’s look at the report. Initial claims surged 28,000 to 337,000 for the week ended Oct. 13, far above economists’ median forecast of 312,000. (The week also included the Columbus Day holiday, which often adds volatility to the report.) Continuing claims rose 19,000 to 2,534,000 for the week ended Oct. 6, though the rise still leaves a general downtrend in these figures intact from the recent 2,597,000 peak at the start of September.
The latest report’s bounce in initial claims reversed the puzzling claims undershoot in the prior week, resulting in a 324,000 average reading thus far in October. The weekly reading touches the top of the 324,000-to-337,000 range of August. But the October average is still only modestly above the lean 301,000-to-320,000 range of September, and the upward drift in claims over the past two months remains within the normal range of variation for this figure.
Indeed, the heightened range in August would have been seen as an offset to the lean 303,000-to-309,000 range of July (which typically reflects the effects of retooling in the auto industry) had the market not been sifting through the reports in search of credit-market effects. The pops in claims in August and now in this most recent week likely reflect mortgage industry layoffs. But the swings would have been taken as normal monthly volatility and holiday effects had credit-market turmoil not occurred and we were not seeking to prove the hypothesis that the economy is slowing.
The latest initial claims data may get some extra attention from Wall Street for another reason: The report coincides with the Bureau of Labor Statistics’ survey week for the October employment report, when it compiles the data for the monthly release, slated for Nov. 2. Could the uptick in claims during the survey week signal a soft jobs report for October?
We don’t think it will have a significant impact. Our October nonfarm payroll estimate still calls for the U.S. economy to add 100,000 jobs in October, following the 110,000 bounce in September and the 89,000 gain in August, with the assumption of a lingering drain on private employment growth from credit-market disruptions. The recent downtrend in continuing claims should reduce upward pressure on the unemployment rate, which should remain at 4.7% in October.
So far, the lean levels of claims run in sharp contrast to the market’s lingering recession fears. Despite the pop seen in the most recent week, the claims data suggest tighter labor-market conditions than most economists would expect given the credit-market turmoil of August.
October 17th, 2007 | Posted by innovTwo economic reports released before the start of Wall Street trading Oct. 17 more or less confirmed the market’s expectations on consumer-level inflation: running ahead of the Federal Reserve’s comfort zone, and housing: still lousy. The market appeared to take those releases in stride, with equities trading higher for much of the Oct. 17 session thanks to some favorable corporate earnings news.
But the release later in the day of a somewhat downbeat Federal Reserve Beige Book report on economic conditions in recent weeks brought gloomy sentiment to the surface, with major stock indexes turning mostly lower while Treasury prices climbed and yields fell.
Here is Action Economics’ rundown of the Oct. 17 reports:
The consumer price index (CPI) rose 0.3% in September, with the core rate, which excludes food and energy prices, up 0.2% as expected, following a 0.1% headline decline in August, and a 0.2% increase in the core. As suspected, energy prices paced the headline strength, rebounding 0.3% after cumulative declines of almost 5% over the prior three months (the year-over-year pace is now up 5.3% after a 2.5% decline).
Gas prices were up 0.4% on the month after declines of nearly 8% over the prior three months, and up 8.7% year-over-year. Food and beverage prices rose 0.5% in September. Transportation and apparel rebounded 0.1% and 0.3%, respectively. Housing costs were up 0.3%.
The report also revealed the expected September year-over-year inflation bounce to 2.8% from the 2% August low point. We should reach a 3.5% rate in October even if we only see a 0.2% monthly headline rise in that month’s CPI. The core year-over-year rate remained at 2.1%, which is just above the Fed’s 2% “soft” target for this measure.
Over the coming quarter, the full array of U.S. inflation reports should continue to show solid headline year-over-year gains even if core figures appear more contained and commodity prices stall at current high levels, due to hard comparisons.
The September CPI mix, with energy prices boosting the headline, paralleled the more dramatic September pattern in the producer price index. In the PPI report, a big 1.1% headline surge was accompanied by a restrained 0.1% core increase.
We still expect a 0.3% gain in the September personal-consumption expenditure chain-price index, an inflation measure favored by the Fed, with a 0.2% core increase.
If downside economic risks diminish through the fourth quarter, as we expect, policymakers may resume the debate from earlier this year of how sustainable low-core inflation rates are if headline inflation remains stuck well in excess of the Fed’s objectives.
Housing starts plunged 10.2%, to a 1.191 million-unit annual pace in September, from a revised 1.337 million rate in August. Permits fell 7.3% to a 1.226 million pace. Single family starts fell 1.7% while multifamily starts were down 34.3%. Home completions fell 8.2%, while houses under construction dropped another 1.4%.
The starts drop in August from the already-low 1.337 million pace in September leaves the figures well below the 1.37 million to 1.63 million range of the prior nine months, with the big two-month drop attributable to financial turmoil. And the September drop in permits to a 1.226 million rate suggests a decline in starts in October as well, which we will peg at a 1.17 million rate.
We saw a sizable bounce in starts in the Northeast of 45.4% following the 35.3% drop in August, and this sharp swing may reflect the concentrated jumbo loan problem of August that unwound to a large extent in September. In the West we saw a 10.1% September drop following last month’s 14.4% decline. The Midwest and South, which actually posted gains in August, showed drops of 28.4% and 11.7%, respectively. The mix of swings in September brought all the regional figures back toward a more balanced pattern of weakness, vs. the coastal pattern in the last report.
Starts under construction revealed smaller declines, however, with a 1.2% drop in September that followed the bigger 1.6% decline in August, due largely to growth in the multifamily segment, where activity actually bounced 1.6% in September after a smaller 0.7% drop in August, which followed a gain of 1.2% back in July. This segment actually grew at a 3.7% rate in the third quarter, leaving weakness concentrated in the single-family figures where the contraction reached a 21.9% rate. This pattern in the under-construction figures is at odds with the headline-starts decline, which was dominated in September by a big multifamily drop.
Given the stronger under-construction figures, we will continue to expect a 20% rate of decline in residential construction in both the third and fourth quarters, following the 11.8% rate of decline in the second quarter. We continue to expect existing home sales to fall by 3.6% to a 5.3 million rate in September, while new home sales fall by 5.7% in September to a 0.75 million pace. We still expect construction spending to fall by 0.2% in September, following the 0.2% August bounce, alongside the 0.1% bounce in September construction hours-worked that followed the big 0.8% August decline.
The Fed’s anecdotal report said economic activity continued to expand in September and early October, but the pace of growth “decelerated” since August. Growth was similar to that seen in the prior report in September in seven of the Fed districts, but was slower in five, including Cleveland, Dallas, Kansas City, Mo., Richmond, and San Francisco—remember it was Cleveland, Kansas City (Mo.) and San Francisco Fed officials who requested a 50 basis-point discount rate cut in September. Meanwhile, consumer spending expanded, but it was uneven, and was slower in September and early October vs. August.
Several manufacturing and service firms also reported weaker domestic demand, though it was offset by strong global markets. Residential real estate continued to weaken while commercial markets remained solid. Job growth eased in some regions but labor shortages were reported in others.
There was moderate upward pressure on wages. Upward pressure on input costs was reported by most Fed districts, due to strong demand domestically and internationally. Energy and raw material prices were also factoring in. But the ability to pass on higher input costs remained mixed.
Overall this is a more cautious, slightly more downbeat report than seen previously. The Beige Book clearly leaves the door open for a Fed easing at the FOMC’s “Halloween” meeting on Oct. 31, though the bulk of incoming economic data continue to suggest that Bernanke ” Co. will stand pat, with an ongoing greater focus on downside economic risks than on upside inflation risks.
Tax advantages spur growing interest in FTZs
October 8th, 2007 | Posted by taxBy Peter Hull The Post and Courier, Charleston, S.C.
Publication: Post and Courier (Charleston, South Carolina)
Oct. 8–Dotted around the Lowcountry are industrial parks that look like any other distribution center or manufacturing site. But these properties are foreign territory, at least as far as U.S. customs laws are concerned.
They’re called foreign trade zones, or FTZs, and thanks largely to the Port of Charleston, the three-county region gets a bigger economic boost from them than most other parts of the country.
As a result, the area is poised to become home to many more companies that qualify to operate within their boundaries. They’re so popular, in fact, that 20 new Lowcountry industrial parks have applied for FTZ status.
Overseen by the U.S. Commerce Department, FTZs were launched in the 1930s as part of President Franklin D. Roosevelt’s New Deal. Doing business in an FTZ means U.S. firms can defer, or in some cases eliminate, duty paid on imported parts or goods, hopefully providing them with a leg up on overseas competition.
FTZs in the Palmetto State account for billions of dollars of trade a year and provide thousands of jobs. But they are almost a world of their own.
“People drive down the highway at Jedburg and wonder what that sign is that says ‘Foreign Trade Zone 21,” ” said Suzan Carroll-Ramsey, foreign trade zones manager for the State Ports Authority.
The SPA is the agency charged with establishing and overseeing FTZs in South Carolina, with the exception of the Columbia zone, which is the responsibility of the Columbia Airport Authority. Only government agencies or nonprofits can oversee FTZs, to avoid conflicts of interest.
While the concept seems a little complicated at first glance, the driving force behind the FTZ program is job creation, Carroll-Ramsey said. A business that fits the mold can shave “a considerable amount” off its bottom line, she said.
Fujifilm, for example, brings in raw materials through the port to make disposable cameras at its Upstate plant. Those goods usually would be subject to import taxes — but not if they’re transported directly from the ship to an FTZ.
In most cases, an FTZ tenant’s final product is taxed once it leaves the zone to be sold on the domestic market. But that same item can remain duty-free if “re-exported” out of the country.
Although tax revenue might be lost at the front end, the idea is to recoup it in the long run because, by attracting employers to the state and a particular region, jobs are created. Those workers in turn pay local and state taxes, and spend their paychecks with local businesses.
But FTZs can’t be created just anywhere.
“We have to justify that it’s going to generate jobs and benefit the public in general,” Carroll-Ramsey said.
South Carolina ranks high among states that operate FTZs. According to federal data, the Palmetto State is 11th in annual volume, fourth in exports and 15th in employment generated by FTZs.
For at least one Charleston firm, being located in a zone paid handsome dividends recently.
Kontane Logistics, which operates a 200,000-square-foot warehouse in the Charleston Regional Business Park off Clements Ferry Road, secured a contract that it otherwise might not have won if it were not in an FTZ.
The Charlotte-based company opened its facility here in November 2005 after a six-month search for a suitable location. Until that time, the company was largely unfamiliar with the foreign trade zone concept, said Kevin O’Neill, Kontane Logistics’ sales manager in Charlotte.
“The more we got educated about it, the more we realized it would be a benefit,” O’Neill said.
Kontane’s business is third-party logistics — import distribution, export packaging and warehousing. It employs about 20 people at its Charleston warehouse, which is part of site No. 9 within FTZ 21.
A recent contract with what O’Neill described as a large Charleston manufacturer illustrates how companies can use FTZ status, even if they don’t enjoy the benefits directly.
By using Kontane’s Charleston warehouse, the manufacturer can import parts to the FTZ and enjoy the tax benefits for itself. Previously, the company used its own warehouse facility and a third-party-run location, neither of which was in an FTZ.
Those incentives almost certainly led to the manufacturer choosing Kontane’s facility, O’Neill said, and the tie-up means the company can consider expanding its Lowcountry operations.
“This project is really important to us and our future down there,” O’Neill said.
It’s a sales tool that works well for companies like Kontane and developers of industrial parks alike.
Charleston’s Quattlebaum Development Co. built the Lowcountry’s first FTZs in the late 1970s. Called Tri-County Industrial Park in Summerville and Cainhoy Park in Charleston, the sites are Nos. 1 and 2, respectively, within FTZ 21.
For a time, one of the sites was used by auto giant General Motors as a staging area for imported parts from France. The shipments were repackaged before they were sent to GM plants in Tennessee and Kentucky, also within FTZs.
Because the parts were moved from one zone to another and didn’t pass through U.S. Customs, GM didn’t pay excise duty until they shipped the finished cars. The arrangement worked well for GM because auto parts are taxed at a rate more than eight times higher than finished vehicles.
“In a big operation it really adds up,” said Alex Quattlebaum III, a principal at Quattlebaum Development. Finding a location in an FTZ has become “something on a lot of people’s checklist,” he said.
In coming years, an FTZ site may be easier to find.
Last week, United Arab Emirates-based Jafza International acquired 1,322 acres near Santee in Orangeburg County, where it proposes to build a massive warehouse and transportation hub. Jafza, which says the development could generate up to 10,000 jobs and cost more than $600 million to complete, has applied to extend FTZ 21 to include the site.
The property, near Interstate 95 and U.S. Highway 301, is slightly more than an hour’s drive from the Port of Charleston, a factor that was considered a key attraction for Jafza.
And a development company run by Ross Perot Jr. is seeking approval to transform more than 760 acres along Interstate 26 near Summerville into what likely will be the largest industrial park ever built in the Charleston region. Perot’s company, Hillwood, also has applied for FTZ status.
One of the newest Lowcountry FTZ sites could be in Berkeley County, where the New York-based Rockefeller Group is looking to develop about 400 acres along Interstate 26 near Jedburg.
The company has applied for the project to become a general-purpose FTZ site, said Ed Guiltinan, regional director for the project. Berkeley County has yet to give the project the green light, but Rockefeller officials hope to break ground during the first or second quarter next year, depending on the approval process, Guiltinan said.
If granted, the park’s FTZ status likely will feature prominently in the company’s sales literature. The park will offer four buildings totaling about 2.7 million square feet of top-of-the-line, big-box industrial space.
“It’s an amenity that makes our development more attractive to tenants,” Guiltinan said.
THE ABCS OF FTZS
A foreign trade zone is a site subject to special customs procedures.
Duty-free treatment is applied to imported goods that are “re-exported,” and duty payment is deferred on items sold in the U.S. Also, foreign and domestic goods held for export in FTZs are exempt from state and local taxes.
The program was created in 1934 to encourage foreign commerce in the U.S. It established areas in or near U.S. Customs’ ports of entry.
The tax relief was designed to lower the costs of U.S.-based operations engaged in international trade, thereby encouraging local employment and investment.
The program has grown significantly. In 1970 there were just eight zones, with three subzones. Now, there are 272 general-purpose zones and 502 subzones in the U.S. and Puerto Rico.
A general-purpose zone usually is an industrial park with multiple tenants. A subzone is typically a manufacturing plant, such as the BMW factory in Greer.
The largest sector that operates in FTZs is the petroleum refining industry, followed by automotive, electronic and pharmaceutical manufacturing.
TRADE AREA
Some of the economic benefits of foreign trade zones in South Carolina:
Number of FTZs: 3
Annual volume: $11 billion
Exports: $1.7 billion
Employment: 8,662 jobs.
To see more of The Post and Courier, or to subscribe to the newspaper, go to http://www.charleston.net. Copyright (c) 2007, The Post and Courier, Charleston, S.C. Distributed by McClatchy-Tribune Information Services. For reprints, email tmsreprints@permissionsgroup.com, call 800-374-7985 or 847-635-6550, send a fax to 847-635-6968, or write to The Permissions Group Inc., 1247 Milwaukee Ave., Suite 303, Glenview, IL 60025, USA.
October 5th, 2007 | Posted by innovDo you need some inspiration to sell a lot more—not just an increase of 10% but more like 200%? Then stop thinking like a mere mortal and start thinking like a superhero. Even though Wonder Woman and Superman don’t exist in real life, that doesn’t mean you can’t learn a sales trick or two from them. Here are eight superhero ideas that you can apply to selling.
1. Discover your strengths. Superheroes aren’t super at everything; they have specific powers, like flying through the air, lifting heavy objects, or seeing through walls. You have unique selling powers, too.
I once saw a man at an airport wearing a T-shirt that said “Super Closer.” I assumed he received it at a sales meeting, and his peers probably got shirts like “Super Prospector,” “Super Cold Caller,” or “Super Presenter.” Determine the parts of the sales process you excel at and take advantage of them.
2. Train yourself to see the big picture. Superheroes don’t just see the little old lady who wants to cross the street. They see the bigger picture, like the giant alien who is about to blast her, so they go after the alien too. When you meet with clients, step back from the situation. Then look for and solve their bigger problem—and sell a bigger solution.
3. Create a team. One superhero alone can only rely on his or her own powers. However, when several join forces, they always seem to beat the bad guys. Let’s say you’re great at most of the steps in the sales process minus the paperwork parts. Hire an assistant who’s fantastic at administration; you’ll sell a lot more and enjoy your work more too.
4. Build trust with your customers. Potential customers are often hard to reach. They don’t answer their phone, voice mail, e-mail, or snail mail. Tenacious salespeople, like superheroes, don’t give up. Try finding a connection, perhaps a mutual friend or customer, who will introduce you to the prospect personally. That will give you credibility so your customer will start to trust you enough to hear your pitch and help you understand his situation.
5. Put others first and help your customers without expectation. Superheroes save whoever needs saving; they don’t think about how the puppies or bank customers in danger will repay them. When you meet with new customers or peers, put all your focus on solving their problems. If you can’t provide those solutions, refer them to someone who can. Offer to make the introduction personally so you are confident the connection gets made correctly and quickly. Chances are you’ll make a good impression and they’ll send opportunities your way in the future.
6. Anticipate the future. Traditional customers usually want to hear how you can save them money. They also believe that “time is money.” But innovative companies often want to hear how you can save them time, because time is increasingly seen to be more valuable than money. Their thinking is that you can always replace one dollar with another, but an hour wasted can never be regained. Be prepared to present how your offerings save both time and money, so you can serve a wider variety of customers.
7. Learn to bounce back. After the bad guy knocks the superhero over a cliff, he usually comes back and wins the battle. When you get knocked down by a competitor or a customer, train yourself to get back on your feet and fight again (BusinessWeek, 8/10/07).
8. Value your life outside your work. Most superheroes have alter egos with day jobs and earthly friends and families. If you skimp on your personal life and focus solely on your business 24/7/365, you won’t have anyone to invite to your celebrations. Add your family to your superhero league; you’ll have a great source of ideas to stay current and stories to help connect you to your customers.
If you act like a superhero, you can save the world before breakfast—and perhaps beat your sales quota before noon. Mask and cape are optional. Happy selling!
October 5th, 2007 | Posted by innovDid the Federal Reserve really need to cut rates a hefty 50 basis points on Sept. 18? Policymakers’ case for a jumbo easing was diminished by the September U.S. employment report released on Oct. 5. While the gain in headline nonfarm payrolls of 110,000 on the month was right in line with market expectations, the real shocker came in the revision to August’s figure. Recall that the decline of 4,000 jobs originally reported for August was seen as the catalyst for the central bank’s big rate cut. Well, that figure was revised by the Bureau of Labor Statistics (BLS) to a gain of 89,000 in the September report.
Action Economics thinks the Oct. 5 report powerfully refuted expectations of a rapidly softening economy, by revising away much of the weakness in the August report and returning to the solid levels of job growth typical of the current expansion in September. And another hefty round of wage increases in September provided a not-so-subtle reminder of the two-sided risk that faces Fed policymakers, as inflation continues to percolate.
The report no doubt occasioned some “I told you so” reactions from market observers who believed that the Fed’s Sept. 18 cut fell into the “one and done” category. Treasury prices fell, and yields rose on Oct. 5 as the likelihood of rate cuts at the Fed’s Oct. 30-31 meeting receded. In contrast, equities ramped higher and the dollar managed to recover somewhat on the day from its recent weakness vs. other major currencies.
Looking elsewhere in the September report, the unemployment rate ticked higher, to 4.70% from 4.64%, while the household employment measure surged 463,000, following the 316,000 drop in August that appeared troublesome at the time. The average work week held at a solid 33.8 hours. Average hourly earnings increased a hefty 0.4% (median 0.3%), which left year-over-year earnings growth at 4.3%. This matches the cyclical high set in April, 2006.
As for industry payroll growth, manufacturing dropped 18,000, construction declined 14,000, private service payrolls rose 106,000, and government payrolls rose 37,000. The bulk of the upward revision to August was found in government payrolls, with a current gain of 57,000 compared to the initially reported loss of 28,000.
The strength in the September report has positive implications for other key economic data for the month. We now assume a 0.5% personal income gain that will leave disposable income growth bouncing to the 5.9% area in the third quarter, following the bonus-related gyration between the first and second quarters of this year of 9.1% and 4.8%, respectively. We now project a 0.1% September industrial production gain that will leave this measure poised for a 4.1% third-quarter growth rate. This follows rates of 3.6% in the second quarter and 1.1% in the first.
The 0.1% rise in the September hours-worked index leaves this aggregate growing at a 1.2% rate in the third quarter, following 2.1% growth in the second and a 1.1% rate in the first. The 3.8% second-quarter final gross domestic product growth rate outpaced hours-worked growth by 1.7%, and our third-quarter GDP forecast of 3.0% suggests almost the same mark-up in growth from hours worked.
The drop in construction employment in September, but with a 0.1% rise in construction hours worked, has boosted our September construction spending forecast to –0.2%, following the surprising 0.2% August rise.
The BLS also said it estimates a downward revision of 297,000 in payroll growth between April, 2006, and March, 2007. Although this revision is downward and translates to a decrease of 25,000 per month over the twelve months ending in March, the revision is smaller than many economists had expected to see earlier this year. It now appears that the payroll back-revisions in 2008 will still leave a general out-performance of job growth through late 2006 and early 2007, though to a smaller degree than reported previously. Productivity growth will likely be boosted by around 0.2% over the period to offset the lower payroll trajectory.
For the Fed, the September jobs report provides cover for the unchanged policy stance we expect at the Oct. 30-31 FOMC meeting. And the hefty 0.4% September wage gain, and 4.3% year-over-year increase, will heighten concerns that Bernanke & Co. may have used too much policy firepower at the Sept. 18 meeting, as many inflation-wary Fed watchers, including ourselves, thought at the time.
Of course, we still aren’t out of the woods with regard to credit market turmoil, but the risks of a slowdown have been reduced by the September jobs data. And the strength in wages reminds us that the upside inflation risks to the economy are still intact.
Designing Sustainable Leadership
October 4th, 2007 | Posted by innovDavid Smith came to the Bainbridge Graduate Institute in Washington ready for a change.
An engineer by training, Smith had worked as a geologist in the mining industry for 20 years before moving up to a managerial role at CH2M Hill, a mining company based in Englewood, Colo.
Working in the corporate communications department there, Smith discovered that a large part of the brand message concerned sustainable mining practices. And though the company was actively engaged with environmental concerns, he felt their approach emphasized sustainability as an after-the-fact mitigation tool, rather than as a central piece of the business model.
Smith wanted no less than to change the entire mining industry from within. So when a colleague in CH2M’s sustainability division, who had served as an adjunct lecturer at the Bainbridge Graduate Institute the year before, recommended the school to Smith, he decided to enroll in a three-year MBA program.
At Bainbridge, all the programs, be they full-time MBAs or executive certificates, specialize in sustainable business. To Smith, the program afforded an opportunity “to combine my interest in sustainability with my interest in business, to try to make the industry itself more environmentally friendly.”
“I went in expecting to learn mostly about sustainability and human issues, and [secondarily] about the nuts and bolts of finance and running a business,” Smith explains.
Instead of teaching separate classes on business strategy and sustainability, professors at BGI taught that sustainability was a necessary piece of strategy. Every class project developing business models assumed sustainability as a goal from the outset, and every class on environmental ethics assumed that solutions would be both profitable and responsible.
“What I learned from BGI was strategic thinking, seeing how relationships and roles work in a company,” recalls Smith. “BGI does a really terrific job of getting that across.”
BGI founder Gifford Pinchot and his teaching faculty emphasize that sustainability depends on self-knowledge. According to Pinchot, getting businesspeople to see sustainability as a strategy rather than a burden requires them to think outside the traditional boxes of business education. It takes a leap of creative faith.
In a module called Leadership & Personal Development, BGI students were encouraged to propose class projects that explored aspects of their personality, even when such projects took them far afield from traditional business questions. Smith, for example, did a class project exploring his own spirituality. “Personal dynamics play a huge role in business—and personal dynamics start with self-knowledge. The basis of being able to have good relationships with people in business is knowing how you operate yourself,” Smith explains.
This human approach to business leadership plays a central role in BGI’s approach to sustainability as a business strategy. The program’s core segment, Social Entrepreneurship & Right Livelihood—mandatory for students in all BGI programs—taught Smith and his classmates to run problem-solving workshops called CreateSessions.
In a CreateSession, the lead student identifies a business problem and conducts ethnographic user research to present the problem to the class. The student then organizes activity sessions in which teams of classmates explore the problem’s parameters to develop new solutions, plans, and prototypes. Smith’s CreateSession asked students to explore mentorship, to identify the qualities of a good adviser.
Smith concluded that “the best mentors wouldn’t tell me what to do; they asked demanding questions of me.” In a business context, Smith’s project suggests leadership structures in which bosses encourage employees to set their own goals and targets, encouraging them to take risks that might lead to innovation.
“At its heart,” says Smith, “BGI is really about innovation—ways to change business and ways for business to change the world.” Though the school doesn’t consider itself a design academy, Smith says design processes were key, especially in the CreateSessions. “You have to be in touch with yourself creatively to develop these ideas, to see things with a different twist.”
Smith now hopes to transfer that creative twist back into the mining industry. Since graduating, he has been working as an independent consultant for the precious minerals mining industry in the western U.S. and Vancouver, B.C., where he works with exploration companies to develop models for sustainable mining practices.
Potential solutions are design projects, Smith says, because “The best opportunities for making mines sustainable arise before they are in use, when they are being designed.” He adds that the vast majority of precious minerals mining has focused on sites outside of North America, so the domestic market for new mines remains wide open. In fact, according to the U.S. Geological Survey, breaking ground at exploration sites for metals mining within the U.S. increased 28% from 2005 to 2006.
Crucially, design thinking allows those interested to implement sustainability early in the game, as a central part of a business model, not a retroactive marketing campaign. “If you have the foresight to build sustainability into your operations from the outset,” Smith explains, “it multiplies the effect. It’s very hard to retrofit these things.”
Soft July Job Numbers Won’t Sway Fed
October 3rd, 2007 | Posted by innovThe U.S. government’s report on job growth for July—along with a closely watched survey of the service sector—showed some softness for two key components of the U.S. economy. A smaller than expected rise in the key nonfarm payrolls figure in the July jobs report will provide fuel for bond-market bulls to continue to focus on downside risks for growth as they look for acknowledgment—from the Federal Reserve’s statement at its Aug. 7 policy meeting—of some signs of weakness in the economy.
Yet the jobs data overall did little to alter the view that labor markets remain tight—with a payroll growth path that is generally in line with the 136,000 average monthly gain in 2007. After all, the payroll growth shortfall in July was mainly due to a decline in the government component for teacher employment that will likely be reversed in August and September. And the Fed is likely to receive only a bit of solace from an uptick in the unemployment rate, and no comfort at all from the persistent strength in wage growth.
Overall, labor market tightness should continue to reinforce the Fed’s view that the balance of risk toward higher inflation remains. While there may be some private angst on current conditions among some policymakers, other FOMC members are likely to retain their hawkish stances. Hence, the compromise in the Aug. 7 statement is likely to show some acknowledgment of continuing woes in housing, as well as the increased volatility in the markets, but with the usual statement that moderate growth is still expected. We also suspect concerns over inflation risks will remain paramount.
We see the data released Aug. 3 as consistent with a 2.8% third-quarter gross domestic product forecast, following the 3.4% GDP growth rate in the second quarter that looks poised for an upward revision to 3.5%. The mix of figures is likely right in line with internal Fed estimates, as implied by their 2007 economic projections in the July Monetary Policy Report.
Here, Action Economics takes a closer look at the Aug. 3 reports:
Employment: Nonfarm payrolls rose 92,000 in July from a revised 126,000 in June (from 132,000 previously), while May’s 190,000 gain was revised to 188,000, for a net revision of –8,000. The unemployment rate ticked up to 4.6%. Average hourly earnings posted a 0.3% gain on the month following an upward bump to June, leaving a 4.0% year-over-year gain in both months. The average workweek dipped to 33.8 hours from 33.9 hours in June.
In short, the payroll and workweek shortfalls are modest relative to the June overshoots, and the rest of the data largely tracked expectations.
As for some of the components of the report, jobs in the goods-producing sector fell 12,000, while manufacturing employment fell 2,000, and construction employment fell 12,000. Jobs in the service-producing sector rose 104,000.
The report revealed only small shortfalls for both the workweek and payrolls, a slight overperformance for wages, and flat factory figures that shaved other July projections only modestly. We assume a 0.3% July personal income gain that will leave third-quarter disposable income bouncing to the 5% area, following the bonus-related gyration between the first and second quarters (9.5% and 3.5%, respectively).
We expect a 0.4% July industrial production gain that will leave a 3% third-quarter growth rate. This follows rates of 2.9% in the second quarter and 1.1% in the first. The 12,000 drop in construction employment in July, and 0.5% drop in construction hours worked, following the 1.0% June surge, implies a flat July construction spending figure.
The hours-worked index dropped 0.1% in July, following the 0.5% June surge, which left this measure on track for 1.9% growth in the third quarter that is right in line with the 2.3% pace of the second, but above the 1.1% rate in the first.
ISM Nonmanufacturing Index: This service-sector gauge fell to 55.8 in July from a robust 60.7 in June. New orders dropped to 52.8 from 56.9. Employment fell to 51.7 from 55.0. Prices paid dipped to 61.3 from 65.5.
Despite the headline drop from the lofty June level, the figure is in line with the generally solid readings of 53.8 for the ISM manufacturing reading on Aug. 1, though weaker than the Chicago PMI, Philly Fed, and Empire State reports. It may be worth noting that surveys conducted later in the month proved less robust than the figures released earlier, which may suggest some turn in business sentiment through the month.
Advantages of Tax-Aligning the Supply Chain
October 1st, 2007 | Posted by taxThe supply chain is the coordinated system of people, processes and technology that an organization uses to plan for and carry out the manufacturing and/or distribution of goods. Because the supply chain can easily account for 75 percent of an organization’s total spending, even relatively small increases in efficiency can have a huge impact on profitability.
Indeed, two-thirds of respondents to an informal poll of international tax professionals attending a recent Deloitte Tax LLP webcast said they were currently implementing or considering supply chain improvements at their organizations.
Although most enterprises strive to involve their tax departments when planning or implementing operational strategies–including two-thirds in the same Deloitte Tax poll–they all too frequently launch significant supply chain projects without considering the tax implications.
For example, one increasingly common supply chain initiative is to centralize global procurement to achieve economies of scale, eliminate redundant operating expenses and perform more strategic sourcing. Successful strategic sourcing initiatives reduce costs of inputs to productions, reducing cost of goods sold (COGS) and increasing operating profit.
If tax planning does not occur in connection with such an initiative, the resulting incremental profits will be taxed at the marginal tax rates of the various operating units that benefit from cost reduction.
It is not uncommon for income taxes to consume 30 percent to 40 percent of those incremental profits. As such, such a supply chain initiative is only 60 percent to 70 percent effective. However, if tax planning is made an integral part of the initiative, then a significant part of the incremental profits can be realized in a low-tax jurisdiction, thus increasing the proportion of the incremental profits that remain with the enterprise.
For these reasons, a strategy called tax aligning the supply chain (TASC) is advantageous. In addition to helping companies protect the increased profits and cash flows by supply chain enhancements from excessive income taxation, TASC aims to help organizations sustain a favorable effective worldwide rate. It's apparent that multinationals seeking to enhance profitability through tightening their supply chains should carefully plan any changes with tax considerations in mind.
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