Not All Is Bleak--But Step Carefully

There is no lack of bleak news.  Just take a minute to think of fast rising consumer loan delinquency rates, home prices that are still moving lower, tighter lending requirements, the lowest year-over-year growth for Retail Sales in 16 years, Lehman Brothers’ bankruptcy, government bailouts that will probably add billions to the federal deficit and rising inflationary pressures.

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Then there are the troubles in the banking industry that continue to escalate.  The government seizure of Freddie Mac and Fannie Mae is a clear signal of a systemic problem in the financial system that isn’t yet close to being solved. There appear to be few avenues of escape for consumers and businesses.
 
Given the above, it may come as a stunning revelation to some that market forces are actually working, as evidenced by Natural Gas Futures Prices falling for the second consecutive month.  We think the recent trend in natural gas prices is encouraging for the economy, especially as we move closer to the winter heating season.
 
A sigh of relief is directed to the marketplace, where we have seen Natural Gas Futures Prices decline 38.9 percent over the last two months, with August closing at $7.94 per million british thermal units (MMBtu).  Although up a significant 31.5 percent from one year ago, the price isn’t nearly as disastrous and crippling to consumers heading into this winter as the $12.99 per MMBtu was that we were looking at just two months ago.  The price seems to have some more room for modest decline before going back up this winter, and it isn’t likely to go back to the crippling numbers we saw this summer.

The general easing of energy costs should provide the U.S. consumer with some breathing room, and with the economic energy to keep the economy on a positive footing.  The forecast for 2009 has not changed though.  Be careful and watch your step.  I would suggest that you take a look at the following Management Objectives and see if you can apply any of these to your business.

King cash

This is the time to remember that cash is king.  Your decisions must be geared to this thought: “What will this do to my cash position in 2009 and 2010?” In addition, look for new markets outside the hardest hit sectors and aggressively move into those that are not very cyclical or are counter-cyclical to the general economic business cycle as the economy continues to weaken through 2009.  Candidates include medical products, oil/gas and renewable energy, private aircraft, food production and military/government contracts.  Gaining market share is essential in a recessionary environment.
 
Electrical Equipment New Orders (NAICS 33531) is expected to post record-high activity through the rest of 2008 before negative cyclical activity takes hold around mid-2009.  The seasonal rising trend dynamics are similar to what we saw in 2005 and on track to post the second best seasonal rise on record.  The 12-month moving total (12MMT) is currently 4.6 percent above one year ago and rising.  What is most encouraging is that the rate-of-change trends are overtly positive and pointing toward more gains through the rest of this year.  Exports, energy and military expenditures seem to be the key drivers in recent months. Exports will weaken with a strengthening dollar.

There is good news in that Information Technology New Orders (NAICS 334512-9) is moving above year-earlier levels and is in the best phase of the business cycle (Phase B).  The news is tempered somewhat in that the ascents in the 12MMT, 3/12 and 12/12 rates-of-change (quarterly and annualized rates of growth) are mild.  Look for mild 12MMT rise to continue through the remainder of this year.  This is a good time to prepare for the projected 2009 downturn in Information Technology New Orders.  

Alan Beaulieu, alan@ecotrends.org, is Senior Analyst, an economist and a Principal with the Institute for Trend Research, in Concord, N.H. He invites your comments. Visit ecotrends.org and subscribe to monthly updates on EcoTrends.
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