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Tuesday, March 08, 2011

Sorry, I'm Having Chief Problems

The Chief comes first.

He'll be okay, though. He's really just shaken up, and I have to soothe his ruffled feathers down and even out his collywobbled system enough to get him to the dentist where I believe the real problem will be treated. He's on antibiotic now and improving.

We are both having a rough time right now. We'll survive. One way I have of dealing with anxiety is to scrub. What with the whole thing, I went to town on Sunday. I woke up on Monday with bursitis of the right shoulder, so now I am staggering around whimpering too.

The NFIB report is worth going through this month. It's remarkable how sales and earnings have basically gone sideways since the middle of 2010. Optimism is slowly improving, though, and hiring plans are improving. You really see the effect of input costs in pricing:

Generally smaller businesses have less fixed costs and run much closer to the ground. This can be an advantage at times - it often makes them more maneuverable - but in an environment like this one it usually means they don't have the margin and have to pass it through.

Grocery stores aren't, for the most part. We're running into possible trouble territory, although there are still some strong positives.

This month's NFIB indicates that borrowing plans are, if anything, getting lower. After going through this report with a fine-toothed comb, I'd say smaller businesses are in the squeeze. They're having to boost pay more than planned, are having more trouble hiring, and are going to have to shove the price increases right through. But the big build in inventory over the last eight months is still positive.

Earnings and profits trends aren't positive.

Really you want to read NFIB reports in tandem with L.103 (Nonfarm, Nonfinancial, Noncorporate Business) from the Flow of Funds report. (Released quarterly, page 74 in the Dec 2010 release which is current.) This is not an exact correlate, but is the best match for NFIB. Well, I realize that many of you don't want to bring up this 125 page pdf compendium of tables, so....:
Now, if you open this up in another tab or window and look at the liabilities, you'll see that by first quarter 2009 (the pits for this type of business), loans had increased awesomely from 2005. By "awesome" I mean that from 2005 to 2008, loans increased a staggering 36%. By first quarter 2009 these businesses had wearily begun to reduce their liabilities, and they are still plodding along doing it.

This is why, btw, that I became so hysterical about administration officials and even the president talking about a credit crisis. The problem was really that these businesses were maxed out on credit, and they still are! (A big chunk of the reduction in liabilities stems from defaults.) They have to work it off, which is why NFIB consistently shows that over 90% of businesses don't want new loans. (92% in this report.)

The margin constraints in this segment are very real - they won't be able to expand strongly. The slow incremental improvement we're seeing is the best we can get, and right now it looks like oil prices may control their futures.

The great thing about economics is that you never need sleeping pills! Just read the reports and you'll be out for hours. The problem is that if you read the reports and then read or listen to many political speeches, you'll be up all night having a nervous breakdown as you realize that our officials have NO CLUE. And they joyously plan big spending programs WITHOUT A CLUE.

The reason I haven't written that much about this issue is that they scared me half witless. When your plans for economic stimulus amount to finding Tinker Bell and Peter Pan, and then lending them a lot of money, people like me get gray fast.

Anyway, you can't say that the administration isn't learning. They have now realized that Peter Pan and Tinker Bell are CEOs of large companies, and so the current theory is that we should give CEOs lots of money - way more than we ever planned to give before. To build windmills. So the power can go out in small businesses.

By 2012 we get another shot at financial realism in politicians. If you think I am being cruel and unfair, look at L.102 (page 73, Nonfarm Nonfinancial Corporate Businesses). And then seek out the line under financial assets that is labeled "US direct investment abroad". I realize that many will not want to read this either, so I clipped it for you, and highlighted it for you. You may not wish to open up this chart if you have been having trouble sleeping:


Confidence abounds!

Have a good night - don't let the bedbugs bite!

Comments:
Whatever did happen to the bedbug stories? They've gone the way of shark attack stories.
 
I hope things get better for you and the Chief.

As an aside (the general media won't pick this up) a member of Michelle Malkin's family has gone missing and they are very concerned.
 
May things improve for you.

"Generally smaller businesses have less fixed costs and run much closer to the ground. This can be an advantage at times - it often makes them more maneuverable - but in an environment like this one it usually means they don't have the margin and have to pass it through.

Grocery stores aren't, for the most part...."

I would add another store to the list.

Uncle's Games Southcenter

"Store liquidation sale is in full swing!! All Red Tag Items are 50% off! We have some fantastic games and items red tagged. Come in and get them while they are still available!"

A friend and I were at the mall yesterday. We visited three stores and we left without buying anything. That was one of the stores we often visit. That's also one less reason to go to the mall in the future, at least for me. Sigh.

I certainly thought about buying something though.

And as for grocery stores, my local QFC (Kroger) sure is clutching at straws. They wanted me to load THEIR "loyalty" card with THEIR online coupons this past week. I wouldn't get the discount unless I went to their website first. Apparently I need to prove my loyalty and/or prove that I care about saving money.

Annoying your customers is definitely not a good plan long-term. Just a hunch.

And lastly, Starbucks just figured out that it could save money rolling out a new logo.

New Starbucks logo debuts on company’s 40th anniversary

If you use one color instead of two, then you can save money on printing costs. Being cheap on printing is a bold move for a company that prides itself on being a premium product.
 
M_O_M, I had to do a double-take at this statement:

...I'd say smaller businesses are in the squeeze. They're having to boost pay more than planned, are having more trouble hiring, and are going to have to shove the price increases right through.

Why are they having trouble hiring, with 9% unemployment? I don't get it, unless they're having trouble competing with unemployment benefits.
 
Take a look at the data in the report. That's what it is.

They probably can't pay enough to get qualified employees (esp. considering benefits). Have you looked at what medical insurance premiums are doing?
 
Neil - specifically, go to the bottom of page 12 in the NFIB report and look at the graph for actual and planned compensation. Actual is rising very rapidly and much faster than planned.

After no raises for years and in many cases, cuts, and probably crappy benefits, it is more than possible that small businesses could be in danger of losing employees for higher wages and benefits elsewhere.

Then go to the bottom of page 13 and look at the prices and actual compensation graph. Notice the very steep rise in compensation after the plummet.
 
I suspect that hiring crunch for small businesses is why my boss is willing to talk to me about telecommuting. They've been resistant for years. I suggested that telecommuting is a perk, one that can be used for recruiting that doesn't really cost them but puts extra money in the employee's pocket. Just like getting a raise.

The thing I'm seeing at the grocery store is that prices are higher and it seems like they are buying less. I try and buy bulk and am pretty good at shopping for deals, but still... It amazes me how little I come home with from the store.

Hope the Chief is feeling better soon and the place is clean enough for you to rest up :)
 
"After no raises for years and in many cases, cuts, and probably crappy benefits, it is more than possible that small businesses could be in danger of losing employees for higher wages and benefits elsewhere."

My husband's small business employer is in this position, they just don't realize it yet. He's one of their key production employees.
 
M_O_M,

Thanks for the pointers to the tables, now I'm trying to integrate it. I've been thinking that we are firmly on a deflationary path because of demographic effects. This data does not fit my model. It's a fairly small blip, but if it turns into a trend, we may be in an inflationary environment.

An explanation may be no further away than page 11 under "QUALIFIED APPLICANTS FOR JOB OPENINGS". It is currently not as difficult finding qualified applicants as it was three years ago, but the trend is definitely that direction. But that may be reflecting a bifurcated high end/low end economy, which you've commented on before. Or that qualified applicants laid off from big-company positions are still hanging out on unemployment.
 
Would the rise in compensation reflect
higher insurance and benefit costs, rather
than wage increases ? if this is the case
the employee is not benefitting and neither
Is the employer.

Sporkfed
 
Spork - well, unemployment insurance rates have risen for a lot of employers, and medical insurance certainly has.

But a lot of employers have responded by going to lower benefit plans if the increase was too much.

The differential in what a lot of small businesses have to pay for insurance and what large businesses have to pay is one of the reasons small businesses can be disadvantaged.
 
stbillorSo MoM,

Would you be in favor of a plan set up by the VA to
run the nation's health care ? Their costs of health
care are much lower than the private sector and the rate of their cost increases is also lower. This would
provide workers with more mobility and security while
allowing small businesses a lower cost basis.
Sporkfed
 
The VA provides a standard of service that's very different from what you typically see in private (and public) hospitals nowadays. As an example, I visited my father-in-law in the local VA after a surgery. He was sharing a room with three other patients.

Most other hospitals, at least around here, have no more than two patients per room. Many average less than two per room, because so many of their rooms are set up for one patient.
 
My experience with the VA (via my father's health care needs) was worse than a typical insurance company - the VA was just as interested in finding reasons NOT to provide service. I'm am not trying to disparage the VA, they have to prioritize like anyone else, but they also exaggerate in their PR like anyone else.
 
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