Ninety-eight months and counting. That's how long the U.S. has been growing. Luckily for all of us, there's not much evidence that an end to the growth is in sight. In fact, most economic observers have concluded that the country will set an expansion record by early next year.
We thought it might all come crashing down (in the form of a recession) when the Asian markets crumbled, followed by Russia's default and devaluation, and then by Latin America's economic problems.
It hasn't happened. Some companies were affected more than others. And the stock market began what could have been a steep descent.
But most companies have weathered the storm. Like Caterpillar. Cat was hard hit, particularly by the drop in Asian demand, but the company put its diversification to work and posted record sales and revenues for last year and for the first quarter. Granted, profits were down-but not significantly so-not anywhere close to the levels we saw in the 1980s or even in 1991.
And, of course, the stock market has risen to new highs. So much for our recession.
There are many reasons for this new increased business strength. Downsizing, restructuring, outsourcing, technology. Computers are at the core of the development of the last source. Computerized machines in factories-computer networks in offices-even the Internet-have made it possible to streamline in ways never before imaginable.
Does that mean fewer employees? It does. But we believe like W. Michael Cox, chief economist at the Federal Reserve Bank in Dallas, that layoffs are economically healthy. Yes, they are painful to those directly affected; yet the economy is helped by a "recycling of labor to new and better uses."
Bottom line-our economy has become more productive than ever. We can do much more for much less. An example-telephone companies employ only about a fourth of the switchboard operators they did 25 years ago-yet long distance calls have increased 10 times in that same period. Kiplinger reports in one of his recent newsletters that productivity is increasing two percent a year-twice the average for the last 20 years.
The circular effect of this productivity increase has been beneficial to almost everyone. Fewer workers are able to produce more so that companies' profits increase. Despite the fact that most companies can get along with fewer people, the economy's strength has dropped unemployment levels to near-record lows. And that low unemployment rate has helped raise wages-as workers can insist that they get paid more because they're doing more work. Because companies can afford the wage increases without a concomitant increase in prices, inflation has stayed in check.
Is there a downside in all this euphoria? Well, we suppose the increasingly rare survival of the "Mom & Pop" stores is one. With national megastores like Wal-Mart, Home Depot, Office Depot, Lowe's etc., there's not much at a small, locally owned company can do to compete. Those that do compete, and thus survive, are those that can offer something like superior service. Like a Florida medical supply firm that furnishes each account exec with a laptop, making it possible to place orders immediately and deliver needed supplies to doctors on the day they're ordered. Or the label maker in the Midwest that focuses on serving only a handful of major customers very well to the exclusion of everyone else. Those that can't find a service or product niche will fade. And maybe they should. The benefits of the changing economic landscape-in this case, the megastore-are too great.
We feel good about this country's economic future. American companies were able to withstand the economic distress being felt in Asia, Latin America and Russia-all at the same time. And now there are signs that a recovery in at least some of those areas may be around the corner. Worry about inflation? We figure Alan Geenspan and the Federal Reserve are our best guardians against that economic tyrant. Even so, there's no sign they'll need to take action.
We're mastering efficiency. Productivity is up. Profits and wages are up. Unemployment is down. Inflation is in check. Life is good. IBI
