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The
latest economic numbers from the United States show that
by the classical definition of two successive quarters
of negative growth, that economy has not entered the
realm of being in a recession.
There
are basically two factors that measure the strength of
an economy, the amount of economic activity and the
amount of employment. One without the other is like
kissing your sister: not very satisfying. That is the
complaint about the Philippine economy: growth without
large and increasing employment. As a side note, I do
not believe the Philippine employment numbers since so
much of our employment is off the books and not
measured. If a local grocery store needs an extra
employee on weekends, for example, it is unlikely that
employed person’s job ever shows up in the official
numbers.
So, in
the first quarter of 2008, the US economy grew by 0.6
percent. This clearly shows that the US economy is
stagnant but still moving upward, albeit very slowly.
However, I forecast that the numbers for the second
quarter will be lower than the first.
You
should be cautious, though, in letting the US numbers
cause you any discouragement.
Although
economic experts never compute this in their numbers,
economic activity is spurred by attitude and perception
as much as it is by any other fiscal and monetary
factors. No, you will not go to work if the government
tax rate is 100 percent and you cannot keep anything of
what you earn. Likewise, business owners will not expand
their efforts if they believe there will not be a
growing base of customers to buy their goods or
services. So it is important that you to listen to the
facts as well as the speculation from the “experts” and
the comments from the politicians. Otherwise, you may
operate from perceptions that are based on faulty
information.
I have
stated my bias and opinion clearly. I do not see the US
economy falling into a recession in spite of all the
externals such as high food and fuel prices, a weak
dollar and all the rest. I do see a stagnant economy
through the rest of the year. And perhaps most
important, I do not see, as some do, a severe economic
fallout in the
Philippines
through the rest of this year.
Here are
a couple of facts about the current US economy. One of
the reasons the GDP was up at all is that there was a
slight increase in inventory of goods during the first
quarter, as well as an expansion in the services sector.
That is, although end-user sales were flat to down,
companies making things still kept their production
lines rolling. These companies made a business decision
to make goods believing that these goods will sell out
over the next few months. They may be wrong and there
will be a complete economic slowdown, but I will still
bet on the wisdom of the people running the businesses.
On the
employment side, let me quote from the ADP National
Employment Report, complied by Automatic Data Processing
Inc. in conjunction with Macroeconomic Advisers Llc.
“Large businesses, defined as those with 500 or more
workers, saw employment decline 18,000, while
medium-size companies with between 50 and 499 workers
declined by 14,000. Conversely, employment among
small-size businesses, defined as those with fewer than
50 workers, advanced 42,000 during the month.” That
means that the drivers of almost all economies, the
“little guys,” are continuing to hire people because
they believe that business will be better in the future.
To
reinforce my belief that the US economy is only going
through a valley rather than getting ready to fall off
the cliff, there is an improvement in the rate of
decline of gross private domestic investment, meaning
the fall in
US
investment spending is slowing. In the first quarter of
2007, investment fell on a year-to-year basis by 6.6
percent, the third-quarter decline was 3.5 percent and
in the first quarter 2008, the decline was 2.8 percent.
The trend of reducing investment may bottom out by the
third quarter of 2008. That is another reason that I do
not forecast a recession and see 2009 to be much
stronger.
In
conclusion, the
US
economy is slow but still growing and there is enough
business optimism for the future to see slightly more
employee hiring and slightly more capital investment.
If it is
even slightly true, as we hear over and over that it is,
why, then if the United States sneezes, the Philippines
catches a cold. Because we have been trained to believe
it is true.
Say you
are thinking of opening another branch of your retail
operation in the new Shoemart or Robinsons mall. Then
comes an economic “expert” or, worse yet, a politician
interviewed on television talking about the Philippines
“catching cold” from a US recession that may not happen.
You delay your plans, you don’t make an investment, you
don’t hire new people and, if enough people think that
way, then the Philippine economy does catch a cold.
Those
employment numbers from the United States that I
mentioned show that the small-business owners in the
United States are not worshipping the words of their
“experts” and politicians any more than you should here.
Be sensible, be alert and be positive about your own
business thinking.
Conditions are never as good as we could hope for and
are never as bad as the most vocal pundits want us to
believe.
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