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Economic Forecast Places Start of Recovery in 2010

January 27, 2009

We all left the presentation by Institute for Trend Research's Alan Beaulieu feeling more than a little pessimistic. This is not surprising, given that Beaulieu's economic forecast did not see any sort of recovery until 2010. What's more, he forecast that things would get worse before they get better.
He spoke at the National Association of Wholesaler-Distributors annual meeting going on this week in Washington, D.C.

Beaulieu forecast the recession we are in right now - though he admits that in some areas he didn't foresee how bad it could get. The first half of his presentation was filled with a lot of doom and gloom, but the second half was more productive, focused on strategies to come out the other side of this recession strong.
Overall, he said 2009 will be a bad year, which most distributors have already come to realize. The first half of 2010 will be negative, with a mild recovery in the second half - but not enough of a recovery to balance out the first half. Unemployment levels will continue to grow, but will never reach Depression-era figures. He says unemployment will likely grow to 10%-11%, and in some regions as high as 15%, but no higher. Deflation will be a short-term event, with a mild inflationary trend to return in late 2009.
How will we know when things are finally turning around? Beaulieu presented some leading indicators to watch so that you can start to push forward - ever so slowly - on new initiatives and markets. One simple indicator was watching when the banks start loaning again. The credit crunch will not go away anytime soon, but eventually banks will need to loan money to make money. He sees that happening in 2010.
Other indicators to watch: Nondefense capital goods - new orders without aircraft, which basically means capital goods expenditures. Durable goods inventory levels and durable goods new orders - when these two lines meet (inventory goes down, while new orders go up), it indicates recovery. Corporate bond prices, as well as the Institute for Supply Management's purchasing managers index and the Conference Board's U.S. composite leading index, are also leading indicators. When these start to turn up, the start of a recovery is likely in about nine months, Beaulieu said.
Some advice he gives:
·         You need cash. For everything that you do, ask, What will this do to our cash position? Question every expenditure.
·         On the topic of credit: Become friendly with your bank and other banks. And be honest with your bank. "They hate surprises."
·         Cut unprofitable customers. But recognize that your actions may have helped to make them unprofitable with bad pricing, for example. (See what Robert Kaplan had to say about how to avoid firing customers here.)
·         Another way to cut costs is to renegotiate vendor contracts. Or renegotiate leases.
·         If you cut the work force, get rid of C players, and though it's difficult, think for the greater good of the company.
·         Fix, close or sell parts of the business that are no longer profitable.
·         Know your competitive advantage. "If you don't know your competitive advantage, you are a commodity provider," he said."


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