News Column

A Cloudy Forecast

May 2003, HISPANIC BUSINESS Magazine

Derek Reveron


Reflecting a lack of consensus among business analysts generally, executives at some of the nation's top Hispanic-owned firms are split over whether the U.S. economy will regain its footing or remain lackluster this year. Unsurprisingly, these same executives foresee vastly different hiring scenarios at their own companies.

"The economy will have little or no growth this year, maybe 2.5 percent at the top," says Dennis E. Nixon, CEO of International Bancshares Corp. in Laredo, Texas. "Some people think the growth will be closer to zero if there are continuing concerns about the war on terrorism."

"I am bullish on the economy," says Vince Eupierre, CEO of Mancha Development Co. in San Bernardino, California. "The war against terrorism will not prevent the economy from growing in the long run. We will see fast growth by the end of the year."

Both agree that, whether the economy sputters or rebounds this year, the burgeoning Hispanic market will continue to provide an economic buffer for many Hispanic Business 500® companies. "It's always helpful to be in a market that's growing in size and purchasing power when the economy is stagnant," says Andy Unanue, chief operating officer of Goya Foods Inc., based in Secaucus, New Jersey.

Various economic forecasts call for growth in the range of 0 to 3 percent this year. Bullish economists argue that mortgage rates will remain low and continue to spur housing construction, home purchases, and refinancing. Moreover, they say, inflation will remain under control, and victories in the war against terrorism will raise consumer and investor confidence, which will boost retail sales and investment in the stock market. Optimists also predict that gasoline prices will drop by the end of the year.

Bears maintain that the economy will buckle under the weight of record budget deficits due partly to the cost of the war against terrorism and the invasion and occupation of Iraq. According to this view, unemployment will continue at 5.8 percent or higher as companies shed more workers; fears of joblessness will continue to hurt consumer confidence and retail sales; and corporate profit margins will remain tight, limiting earnings and business investment. Furthermore, pessimists contend, the economic benefits of presumed successes against terrorism and a sharp reduction of U.S. military involvement overseas have been overstated.

Most observers, including some Hispanic Business 500 executives, believe that the economy's performance in 2003 will depend largely on consumer spending levels. Shoppers have helped prop up the economy over the last few years. However, if consumer confidence continues to wane, purchases of major items such as homes and autos will fall and the economy will stumble, says Mr. Nixon.

"It has taken a lot of promotional activity, such as zero money down for cars, to get the consumer off the sidelines. But once that pent-up demand is exhausted, we begin to have dips. It's the same with housing," he says.

Burt Automotive Network, an Englewood, Colorado–based firm that owns several car sales and service facilities, is bracing for a possible downturn in vehicle sales, despite continued incentives from manufacturers. "It's going to be tougher to sell cars this year than over the last few years," says CEO Lloyd Chavez Jr., whose firm was number 1 on last year's Hispanic Business 500.

The dealership has pared profit margins on autos to the bone but continues to prosper, thanks largely to sales of SUVs and trucks, says Mr. Chavez. The bigger vehicles have a higher profit margin and account for about 70 percent of sales.

Profits from autos will rebound this year along with the economy, Mr. Chavez predicts. "The bottom of the recession is behind us and there will be strong opportunity for the economy to prosper."

This summer, Burt will open new Honda and Ford dealerships. By the end of the year, the company will begin construction on Lincoln-Mercury and Mazda dealerships.

Housing construction, another economic mainstay, will remain strong in 2003, helping lead the nation to growth by mid-summer, Mr. Eupierre believes. He expects the average 30-year fixed-rate mortgage rate to remain around the 40-year low it reached in March. Also, oil prices will drop further, he says, cutting the construction industry's transportation costs.

"We are very excited about the future of our industry. That's why we are embarking on a very growth-oriented plan," says Mr. Eupierre. Mancha expects to build upwards of five units per year over the next few years for Burger King and Denny's restaurants combined.

Hispanic Business 500 executives don't expect the overall unemployment rate to decline much in 2003. In fact, it could rise, says Mr. Nixon of International Bancshares. The bank, which has about 2,000 workers, plans to hire few additional workers because it expects interest rates to remain low, keeping a lid on the banking industry's net income.

"Banks are a barometer of the economy," says Mr. Nixon. "There aren't a lot of companies looking to hire. They are trying to make do with what they have or downsize."

Other Hispanic Business 500 companies plan to beef up their workforce, even as layoffs continue nationwide. Burt Automotive will add nearly 200 workers to staff its new dealerships, raising the company's total to about 1,400, says Mr. Chavez. Mancha Development will increase its workforce from more than 1,700 to about 2,000 this year, says Mr. Eupierre. Goya plans to hold steady at about 2,500 employees.

Nationwide, employment will not rise until CEOs develop a positive outlook, Hispanic Business 500 executives say. Even with a steady flow of good economic news and the worst of the war in Iraq in the past, the threat of terrorism and future military action abroad could surface unpredictably, warns Mr. Nixon.

"The very possibility of bad news is the worst diet for an economy. The drip, drip, drip of bad news could continue throughout the year," he says.

The 2003 Job Outlook

During the first quarter of this year, the U.S. economy lost 395,000 jobs. According to a Reuters poll of economists, the job market most likely won't improve for the rest of 2003.

However, the Bureau of Labor Statistics report revealing the first-quarter totals points to some long-term trends that suggest job potential. "Over the past two years, government employment trended upward, while private-sector employment trended downward," the report states. Despite budget troubles at the state and municipal levels, government has emerged from the 2001 recession as a growth sector.

Thanks to a strong housing market, mortgage banking has increased its labor force 42 percent since January 2001, according to the report. The related construction industry shows no net change in the last year.

On the downside, employment in manufacturing, retail, and transportation exhibit downward trends. Three of the hardest-hit manufacturing sectors – electronics, industrial machinery, and aircraft – have cut their payrolls 20 percent or more since November 2000. Travel remains in the shrinkage mode. Employment in the service sector, the largest in the U.S. economy, looks flat, while the wholesale sector has stabilized after shedding about 5,000 jobs per month in 2002.


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