Spokane Journal of Business

Businesspeople have reasons to be optimistic about 2012

Strong retail sales, capital spending, other indicators suggest economic rebound

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Businesspeople have reasons to be optimistic about 2012
Michael Maehl

Sir Winston Churchill remarked that one should "avoid prophesying beforehand because it is much better to prophesy after the event has already taken place." Nonetheless, I am moved to disregard his advice in this particular instance.

Before I share with you the reasons I feel that this year should be one for business-related optimism, let me provide a little background for my perspectives. I am two things unalterably—an apostle of free-market capitalism and an optimist. Both are mutually supportive and have been consistently reinforced over my almost-40 years in my chosen field.

My partner, Jim Harvey, and I have agreed that both this current economy and stock market qualified long ago for the Rodney Dangerfield Award. In spite of much evidence to the contrary, neither gets any respect. Instead, media and political messages do little to give most of us any sense other than pervasive doom and impending catastrophe. Chicken Little has become our national bird. It's way past time to put that bird on the rotisserie.

So, let's look at some of the facts that support the case that business people and professionals should, in fact, be not just feeling good about the year ahead but be taking active steps to get in front of the positive trends either already under way or about to come.

First, in terms of sentiment, the trend definitely appears to be our friend. Consumer sentiment has reached its most positive levels in more than six months. That's being supported in continued strong core retail sales, which were reported as being up at a 5.3 percent annual rate in the fourth quarter versus the level in the third quarter, according to the U.S. Department of Commerce.

Noticeable examples of that being demonstrated are the share prices of Apple and Starbucks having hit all-time highs in the past month. These are both companies driven by consumer discretionary spending—though the "need" for an iPad or a double cappuccino may overcome discretion. If people weren't feeling that they could afford such spending, we still would be locked into early 2009.

In the business context, a National Federation of Independent Business survey, citing reduced concerns about future business conditions and increased expectations for real sales gains from respondents, showed optimism increasing for the fourth straight month. By the way, most of the respondents reported that their sectors—corporate, middle market, business, and consumer—are doing better than last year.

Consider, too, that at $1.1 trillion in 2011, capital spending by U.S. businesses represents 8.3 percent of gross domestic product. At this level, capital spending is at an all-time high, far exceeding the amount spent in 2000 for the Y2K non-event. This isn't topping out either, making it another trend reflecting a positive outlook.

Then there's the level of unemployment claims, a proxy for the underlying health of businesses, which has been leading the U.S. equity markets higher. Businesses are firing fewer people because they have cut costs to the bone, leaving them well prepared to cope with most future adversities.

Because it seems to get the most press, let's look at real estate. If you look only at rental prices, supply and demand, household formation, it would seem that the bottom has been set, and the turn to the upside already is under way. The National Association of Realtors pending home sales index gained more than 7 percent just last month, moving to its best level since April of 2010, when it was artificially supported by the ill-conceived homebuyer tax credit. The last time we were at these levels, without artificial support, was almost five years ago. Additionally, the latest U.S. Commerce Department report on construction spending, which showed most of its strength coming in private housing, was also way ahead of expectations.

Tied to all that is the fact that the shares of three large homebuilders recently set new 52 week highs, and Home Depot has announced that it will be hiring more than 70,000 temporary workers this spring. More positive anticipation, to be sure.

Though I can wax eloquent on many more facts, let me add just one more for now. The U.S. Commerce Department has said that wholesale sales and inventories are continuing to rise after last summer's drop. That's a definite positive growth sign, as it means many businesses are anticipating stronger demand.

These past few years have been fiscally and emotionally trying for all of us. The emotional and monetary stresses caused by these events may be the reason for something I hear quite a lot from the businesspeople and professionals I talk with. That is that this downturn is different and somehow worse from others.

There is a book titled "This Time, It's Different" that examines eight centuries of financial history and concludes that, while specific names are different, the results have always been much the same. What is reinforced throughout the book is that markets and economies are cyclical. We've had the bad; now, it's time for the good.

During my career, I've heard that phrase used in periods in the 1970s and '80s, too, when things weren't all rosy. I also heard it in 1999 and 2000 in the (short-lived) era of the New Economy.

Today, we have a twofold challenge. One is that a majority of people are basing their current views and actions—or inactions—on the events of 2008 and 2009. I guess they're waiting for all that to somehow recur, in spite of the facts before them. (This is typical of upturns in economic cycles as people use the recent past to project into the future.) The other relates to those pessimists who insist the economic glass is half empty. They believe things once again are poised to crash due to: (a) the global economy collapsing in the wake of Eurozone defaults, (b) we get a second down leg of the U.S. real estate market, (c) the implosion of the Chinese economy, and (d) your write-in choice here. Sorry, I can't buy any of those ... definitely no evidence of such trends there.

So, how many of these positive facts do you recall seeing or reading? Any? This, I believe, has a lot to do with why we still have so much fear and uncertainty. There is little to no coverage, much less emphasis, on the underlying strength of, and positive direction in, our economy.

Because we were the first to go through the downturn and due to our economic flexibility, the U.S. is way ahead of the rest of the world in our recovery. We in the Inland Northwest need to be participating in that recovery by first acknowledging that it's actually happening.

It's tough to continue to worry about the end of the world being right around the corner when the fundamentals continue to show improvement. It's true that all the uncertainty made the past couple of years tough ones. But that's the past and the past should not be the basis for, or the target of, your future plans.

We begin this year with a strengthening economy, a broad base of monetary liquidity, and the opportunity to benefit from it by actively investing in and taking action with our businesses and professions.

Free markets are neither perfect nor do they create Utopia, but they're better than any alternative I'm aware of.

Neither I nor a business can force your customers and clients to buy a service, product, or shares in your company. However, you can let them know you're here and definitely open for business—now and tomorrow.

  • Michael Maehl

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