The State of the Economy – October 2008

Here is an update on the economy from the street level. As we say in Atlanta: "All roads lead to Peachtree."

There is definitely great anxiety over the economic situation and the effects are starting to hit home. The housing crisis, even though vast, has been regional mostly affecting the lower end of the income spectrum. The credit crisis hit the top end of the income spectrum, but through large companies is slowly tricking down to Main Street. The next big crisis of this recession will be the credit card crisis. As the Senator from Illinois stated this morning yet again: "It will get worse before it gets better."

It is amazing to receive a constant barrage of pre-approved 0% APR until 2010 credit cards with a $50,000.00 limit. A year ago the credit limit was $5,000.00 at best. Haven’t we learned anything at all? What will happen in 2010 when all the people who have scraped by this recession are hit with 18% monthly interest on their $50,000.00 credit limits. At the same time the banks are pumping air into the bubble they are asking for a government bailout. American Express seems to be the only prudent credit issuer by slashing credit limits on existing customers.

The bankruptcy of any of the Detroit big three would be a catastrophic catalyst to an accelerating downward spiral. The federal government cannot afford this and it is clear that Detroit will be bailed out in one way or another. Hind sight is always 20-20, but I think that the common sentiment is that auto manufacturers have been driving down a dead end street for a decade. The phenomenal success of the Ford F-150 truck has been a blessing, but the big truck mentality has also been the undoing of the giant.

If the the price of a Big Mack is any indication of the economic parity and Starbucks "lattenomics" an indication of the economy, then LinkedIn profile updates are a sure indication of upper and middle management layoffs. In the recent weeks I have seen an up swing in the number of links with executive recruiters. Profiles are being updated. People use groups to introduce themselves looking for new opportunities. In general we have seen a dramatic increase in the number of resumes that are being sent to us. The credit crisis is finally hitting home in the middle class in a brutal way.

There is also a clear protectionist mentality growing. A local colleague selling a foreign product was informed by a state purchasing agent that they have an executive order to buy American. This is worrying on multiple levels. In this case all the US companies outsource development out of the country so the net effect on employment in the US is marginal. Also a protectionist attitude will only serve to prolong a global recession.

The Presidential election is one of the most epic in US history and is emotionally charged on so many levels that a foreigner could never understand. On the democratic side there is tremendous positive anxiety. The "audacity of hope" is a great term for expressing sentiment for so many interest groups: middle class, women, minorities, etc. On the republican side there is tremendous angst. If the last projections materialize the outcome will have long lasting ramifications for the republican party and an ideology that has permeated both US and foreign policy for almost a decade. Alan Greenspan’s comment in a senate hearing sums up the dichotomy between Republican financial management and the current crisis. Alan remarked that his fundamental theory that institutions under deregulation would seek long term sustainable growth and stability through self regulation over short term profit was flawed says it all. Free market economy needs federal regulation and oversight to over come base human nature.

I will not make a projection on when we hit rock bottom. Such a prediction today would be 100% pure guess work. My only suggestion is to position your product to have a positive net impact within a single budgeting cycle. If you are not business critical or cannot contribute very clearly to the bottom line then 2009 will be a dry year.

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