Top Ten Trends to Watch

To put it mildly, 2009 has been a challenging year for business
Despite signs of improvement in the United States and other parts of the world, the recovery process has been slow and analysts are in disagreement over how much growth we can expect in 2010. The recent announcement that the GDP in the U.S. rose by 3.5 percent in the third quarter looks like evidence that we’re heading in a positive direction, but economists fear we won’t be able to sustain this growth with­out the help of government incentives and stimulus spending. With practically every news medium offer­ing conflicting views on the state of the economy’s rehabilitation, it’s difficult to know exactly where we stand. ABJ weighs in on current business trends and anticipates what to watch in the coming year.

THE DEPRECIATING DOLLAR
The volatility of the U.S. dollar has been a hot is­sue lately. USA Today reports a steady erosion the dollar’s value since March against the currencies of our biggest trading partners. Some economists worry that huge budget deficits will result in in­flation as the government prints more money to pay its debts. This lost confidence has even stirred international talk of introducing a new global cur­rency to replace the dollar as the world’s official reserve currency. However, the dollar’s position is not likely to change anytime soon. “There are lots of reasons to be concerned about the dollar,” says Kenneth Rogoff, former IMF chief econo­mist. “But a weaker dollar is a fantastic boost for the United States, and it’s a problem for the rest of the world.” A story published October 22 in The Economist argues that fretfulness over the dollar is exaggerated and that a weaker dollar will help rebalance the global economy by shift­ing America’s economic focus toward exports.

EXECUTIVE PAY CUTS
Kenneth Feinberg, also known as the Obama ad­ministration’s “pay czar,” released a report in Oc­tober outlining new limits on executive pay for the seven companies under his review that have received government bailout money. The firms included in the crackdown are American Interna­tional Group Inc., Citigroup Inc., Bank of America Corp., General Motors Corp., GMAC Financial Services, Chrysler Group and Chrysler Financial. The new pay structure does away with excessive cash bonuses, reduces the salaries of some execu­tives by 50 percent or more and ties compensa­tion to long-term performance in the form of stocks. The goal is to discourage short-term risk taking and to appease public anger over enor­mous pay packages. On the same day as Feinberg announced the cuts, the Federal Reserve said it would review pay practices at 28 other large banks. Wall Street may think these measures are unfair, but many observers think it’s about time.

BAILOUTS FOR SMALL BUSINESSES
Finally, some good news for small business own­ers: President Obama introduced a new legisla­tion in late October which increases the Small Business Administration’s lending budget by $44 billion. The goal is to improve small busi­ness owners’ access to credit in order to boost job creation. With banks clamping down on credit for small businesses, this proposal could provide some relief, at last. The so-called, “Small Busi­ness Financing and Investment Act” still needs to be approved by the Senate and there is no timetable yet for when the money will roll out.

E-COMMERCE AND IT COMPANIES
In the midst of the “Great Recession,” some indus­tries are weathering the storm better than most. E-commerce companies saw record growth in the last month. According to a report on CNNMoney.com, Amazon and Netflix shares hit an all-time high in October. As more and more people choose to do their shopping from home or at work, online commerce companies are snatching up a larger share of the overall retail market. The IT industry isn’t faring to badly either. At the Web 2.0 Summit in San Francisco this October, Apple announced it’s best-ever quarterly results with third-quarter revenues of $9.9 billion. Google, IBM and Yahoo! also reported increased year-on-year profits.

BARTER TRADE NETWORKS
Businesses are relying on a time-tested strategy to get them through the tough times: barter trade networks. Exchanging goods and services directly without the use of money saves compa­nies valuable cash and creates profitable relation­ships in the marketplace. According to Time, the International Reciprocal Trade Association reports that more than 400,000 businesses transacted $10 billion globally in 2008. The number is esti­mated to increase by 15 percent in 2009. If the current economic climate is a sign of things to come, you can be sure this trend is here to stay.  

THE HOUSING CRISIS
Even with the S&P/Case-Shiller index reporting a recent gain in home prices, many financial experts don’t think home values have hit bottom yet. Mark Zandi, chief economist with Moody’s Economy.com told CNNmoney.com, “I think more price declines are coming because the foreclosure crisis is not over.” Rising unemployment is distressing to investors and legislatures. Meanwhile, the federal government extended the first-time homebuyer tax credit on November 6 through to mid-2010.

UNEMPLOYMENT
One recent trend analysts don’t expect to change overnight is the sluggish rate of job recovery. The unemployment rate reached a 26-year high of 10.2 percent in October. A survey by the National Association of Business Economics revealed that many economists believe a full job recovery won’t occur until 2012 or later. The reason for the delay is partly because companies are holding off on hiring new staff until they see a significant increase in demand. In a statement on CNNmoney.com, Keith Hembre, chief economist with First American Funds, says “it typically takes a couple of quarters after the upturn in revenue to get an upturn in employment. That takes us to the second quarter of next year.”

WEAK CONSUMER SPENDING
Unfortunately, it looks like the consumer frugality trend still looms for 2010. Reuters reported that consumer spending fell 0.5 percent in September, following the end of the government incentive program, “cash for clunkers.” While retailers expect a spike in spending as the holiday season approaches, some experts aren’t so sure. A recent New York Times story quotes Sung Won Sohn, an economics professor at California State University’s Smith School of Business, who says, “This recovery is going to be very weak. Consumers are in no position or mood to spend. Their wages are down and they can’t get credit.” And with unemployment rates rising, we could be in for a stingy Christmas.

OIL MARKETS
The recession is taking a heavy toll on the world’s largest oil companies. Exxon Mobil reported a 68 percent decline in profit in the third quarter. Simi­larly, Royal Dutch Shell said its third-quarter profit fell by 62 percent and that they would be cutting 5,000 jobs. Once again, a sluggish economy is to blame for the rising price of oil and the sharp dive in energy demand. Robbert Van Batenburg, head of equity research at Louis Capital Markets in New York, told The Washington Post that refining con­ditions aren’t going to go back to what they were in the period between 2004 and 2007. “It’s some­thing that’s going to be here to stay,” he said.

AUTOMOTIVE, CONSTRUCTION AND FINANCIAL INDUSTRIES
It’s no surprise the automotive, construction and financial industries are among the biggest los­ers of the economic downturn. According to a report on CNNmoney.com, the three industries together have lost 18 percent of their work force since the beginning of the recession. The re­maining sectors in the economy have lost only 4 percent overall. Job recovery in these sectors will likely be very difficult or next to impossible. Between the slump in consumer spending and the failing housing and banking markets, things could get worse before they get better.

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