News Column

Softening the Blow

June 2007, HISPANIC BUSINESS Magazine

Dr. Juan Solana

Focusing on their more-or-less secure jobs and the money in their pocket, American consumers are keeping the national economy aloft even as it loses altitude. Amid a mixed bag of indicators, the one constant is that economic growth is slowing. In late April, the Bureau of Economic Analysis said growth has slowed to 1.3 percent, the lowest number in four years. That has combined with a 4 percent inflation rate that is higher than what the nation has become accustomed to in recent years. But consumption the big stick average citizens can use to goose the economy is roaring along at a 3.8 percent annual rate. And average citizens have been kind to the economy in another way: The cost of labor is inching along at 0.6 percent a year. That suggests the increase in inflation is mostly due to the volatile impacts of food and fuel, and not the vicious circle of higher wages creating higher inflation and a new round of wage hikes. Employees may have been reticent about seeking more money due to an increasing number of job cuts seen nationwide. April saw a 44 percent increase in layoff notices compared to March, according to placement firm Challenger, Gray & Christmas [although it notes much of that pain was concentrated in the financial sector]. "Coming on the heels of a lower-than-expected GDP reading in the first quarter, the April job-cut surge is likely to further increase concerns about the strength of the economy and the job market," the firm's CEO, John Challenger, said in a statement accompanying its monthly report. Balancing that and boosting hopes for that soft landing was the observation that the total number of job cuts in the first quarter of 2007 was still the lowest number since 2000. The unemployment figures for the first month of the present quarter reinforced this ambivalent but generally downbeat prognosis, with more people out of work, slower job growth, and fewer hours being worked by those with jobs, according to data released in early May by the U.S. Department of Labor. For all Americans, the unemployment rate rose from 4.4 percent to 4.5 percent. While that's but a small increase, a closer look shows that almost 400,000 people stopped looking for work. Percentage Change in GDP, Annual Rates Percentage Change in GDP, Annual Rates

HispanTelligence calculations based on Bureau of Economic Analysis, Released April 27, 2007. For Hispanics in particular, the unemployment rate increased from 5.1 percent in March to 5.4 percent in April. Again, first looks can be deceiving. While those numbers are worse than for the population as a whole, on an annual basis, Hispanic employment continues rising, up 820,000 jobs year to date compared to the same period in 2006. Hispanic men continue securing jobs [158,000 jobs in April on a non-seasonally adjusted basis], while Hispanic women lost 4,000 jobs and Hispanic youth lost 17,000 jobs in April. The unemployment rate among Hispanic youth increased to 17.1 percent in April 2007 versus just 12.4 percent in April 2006. The job numbers and dismal economic growth in the first quarter have left some observers thinking that the Federal Reserve might cut interest rates. But with Wall Street humming in overdrive, public-debt burden, and price increases, this seems unlikely. The Fed hasn't adjusted rate since August, and some observers suspect they won't touch them this year. Still, at the May meeting of the Fed, inflation remains the governors' main focus. At that meeting, the Fed sounded somewhat upbeat. "The economy seems likely to expand at a moderate pace over coming quarters." Big business's profits have continued growing through 2006, although at a slower rate than in 2005 [at 19 percent compared to 39 percent]. Those profits aren't only due to big-spending consumers who aren't demanding raises. A critical development is the accelerating growth of corporate profits originating overseas, where much stronger economic growth continues and an ever-cheaper U.S. dollar spurs our exports and boosts the bottom line when foreign currencies are translated into U.S. dollars. This 2006 trend was evident in the first quarter of this year, when many publicly traded companies' earnings beat estimates due to higher-than-expected gains from international operations. Expect more of the same throughout this year and into 2008. Although the U.S. economy is forecast to slow down, the global economy will continue growing at a brisk pace of 4.9 percent for the next two years compared to the less-vigorous 2.2 percent predicted for the U.S. This, together with the ongoing decline in the U.S. dollar, should provide even more of a boost to export-oriented companies and U.S companies with a large portion of their revenues from overseas sales. Not all overseas markets are growing at the same rate, however. Mexico's economy will grow at a relatively tame 3.4 percent rate this year, reflecting in part that the U.S. takes 85 percent of its exports. China, meanwhile, is expected to boast a 10 percent rate, India an 8.4 and Brazil 4.4 percent. Back in the States, small businesses - ranging from sole proprietors to those that boast 500 employees continue to quietly punch above their weight, perhaps drowned out by the noise emanating from those big-business layoffs. According to a recent report by the U.S. Small Business Administration, small businesses are contributing 50 percent of the nation's gross domestic product. The study by Katherine Kobe of the SBA's Office of Advocacy found that while "the small business share of many individual industries continued to decline during this time period, the share stabilized in the other services sector and rose slightly in the manufacturing sector." "The Small Business Share of GDP, 1998-2004" shows that the construction and service sectors are dominated by small businesses, with 85 percent of the business in those areas. Other sectors, where more than half the companies are small, included arts and entertainment (75 percent), professional and technical services (70 percent), accommodation and food service (58 percent), and health and social services (56 percent). At the other end of the spectrum were mining and manufacturing (33 percent), utilities (23 percent), and information (20 percent).



Source: HISPANIC BUSINESS Magazine and Hispanicbusiness.com, Copyright (c) 2007 All Rights Reserved.


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