Companies Paying Close Attention to Economic Trends

I sat in on a conference call with economist Alan Beaulieu on Friday, where he was discussing his latest industry association collaboration to put together a regular economic trends update for Heating, Air Conditioning, and Refrigeration Distributors International (HARDI). In addition to that announcement, he also took the time to address the current state of the U.S. economy and answered my question on the Canadian economy.
 
Beaulieu speaks at many distribution association events and his firm, the Institute for Trend Research, does analysis and regular reports for its clients on economic conditions.
 
He told those on the call Friday that he sees a macroeconomic downturn to continue in 2009 and 2010 that will be steeper than in the 1990s and earlier this decade. This will make it harder for housing to rebound. It will take "years" for bankers to get back to "business as usual," he said, and when they do, standards for getting loans for both individuals and businesses will be steeper. Inflation as a result of rising energy and food prices will start to strain consumer spending.


 
Beaulieu told participants in the call that macroeconomic trends have a direct relationship with regional and local trends. Businesses need to be careful as conditions possibly get worse to avoid adopting the "not me" attitude. Beaulieu says that many business owners tend to find reasons that the current conditions won't affect their company. He urges everyone to be proactive, and examine business objectives in light of economic forecasts.
 
In current conditions, look at cost efficiencies, including lean practices. "A lot of businesses pay lip service and don't take lean practices to heart," he said. (Read Lessons Learned On Lean, MDM, July 25, 2008) Cutting costs may be necessary, including layoffs or paring down inefficient and low-margin lines. Or look at new market opportunities. For those who have primarily served the residential market, look at other sectors of construction that will probably not fall, like health care or schools.
 
The big piece of advice: "Focus on cash flow. Everything you do should be focused on that." In addition, determine your competitive advantage so that in a downturn you cannot be viewed as just a commodity by your customers.
 
Our northern neighbor, Canada, is starting to feel the effects of a weakened U.S. economy. Not surprising, as according to Beaulieu, 74% of Canada's exports are to the U.S. Still, the slowdown in Canada will be "spotty"; some bright spots exist, including recently discovered energy reserves that will drive development in those provinces.
 
Beaulieu says the demand for the kind of economic analysis his company provides has gone up in the past year. Companies are starting to take a closer look at overall market trends and how their company might be affected. "When the economy is strong, there is the underlying belief that it will stay strong. But when the economy is on the way down, they believe it will continue that way," he said.