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look at their balance sheets and concentrate on having enough cash on hand to weather the economic storm of 2009-10. Debt reduction should also be considered. Watch long-term capital expenditures and check the impulse to add to fixed costs.
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Lastly, but perhaps most importantly, this is the time to develop a plan for “what’s next.” By that we mean that business leaders need to prepare to take their businesses into areas that will be less impacted by a downturn or entirely immune to a global slowdown.  ; Missionary efforts into new markets or services should be begun now.To gauge the effect of economic trends on distributors, MDM tapped two economists to gain a snapshot of current economic conditions. MDM spoke with Alan Beaulieu of the Institute for Trend Research (603-226-9331, www.ecotrends.org), and Bill Dunkelberg of the National Federation of Independent Businesses.
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What is the state of the economy?
Alan Beaulieu: The U.S. economy is in better shape than most people think it is. We have largely absorbed a significant blow in the form of the downturn in the housing market.
It is not hard to imagine that in past decades this would have sent us into a recession, but this time we have taken the hit” and are continuing to grow, albeit at a noticeably slower pace. To put this in context, the decline in housing starts over the last 16 months is the steepest in the post-WWII period and yet GDP and Industrial Production are continuing to grow.
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Bill Dunkelberg: Things have been slow -the NFIB’s Small Business Optimism Index a year ago in March signaled a slowdown in the economy. & hellip; We haven’t had the index above 100 since then. But on the other hand we have no real recession signals in the data at all.
So it’s just slow growth -we have had a good party since the expansion started in & lsquo; 03. You always slow down and take a breath. We don’t see a whole lot happening in the economy one way or the other. … Everything is holding up.
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Reports are that business spending will slow significantly by the end of the year.
Beaulieu: Business spending is more than just slowing down; New Orders for the last 12 months are flat. & hellip; We are anticipating an increase in the New Orders figures later this year and into 2008. A pick-up in activity is consistent with healthy levels of profitability and the amount of cash on hand in U.S. businesses. Both of these factors -profits and cash -are likely to be diminishing in the latter half of 2008 and on into 2009.  ; The New Orders trend will likely follow suit.
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Will the reported “credit crunch” filter down to business lending?
Beaulieu: The credit crunch is probably an overstatement of what is in reality a swing back to normal credit conditions. Too much money was made too available and an asset bubble resulted. The fact that lenders are now requiring deposits coupled with income documentations does not measure up to a “crunch” but in our minds would be best called “good business.” People with a solid credit rating can still get a loan, they just might have to pay a little more for it and in the business realm they may have to provide some personal guarantees, which is also normal at this juncture of the business cycle.
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The Federal Reserve Board deserves high marks for how it handled the crisis. Dr. Bernanke et al provided a strong measured response by lowering the discount rate in lieu of a panicked reduction in the Federal Funds Rate.
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It was also crucial that they extended the terms from overnight to 30 days with a promise to renew the extended terms as necessary. This allowed banks to trade their “junk” paper for hard cash, thus providing liquidity and allowing for ongoing loan operations at the banks who took advantage of the opportunities afforded them by the Fed.  ;
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Dunkelberg: Nobody is having problems getting loans, contrary to popular belief. Three percent of our owners (in NFIB’s monthly survey) say that credit and rates are their No. 1 business problem, and that’s been that way for 15 years. Thirty-six percent of owners say their credit-borrowing needs are met. Four percent said they weren’t and that’s actually a better number than we usually see.
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What should MDM readers do?
Beaulieu: This would be great time to take action in preparation for a rough 2009-10.  ; Business leaders should take a hard
