Businomics From The Headlines To Your Bottom Line: How to Profit in Any Economic Cycle

275 Pages·2007·3.27 MB·English

by  William B. Conerly Ph.D.

BUSI NOMICS
MONEY TALK
From the Headlines

to Your Bottom Line
—How to Profi t in Any Economic Cycle
W illiam B. Conerly, Ph.D. Business staffi ng levels, inventories,
decisions capital expenditures, or
rely on a fi nancial structure, then
view of the this book is for you as well.
future and If you want to better un-
economics derstand your investments
helps form in real estate, stocks, or
a clearer bonds, then this book helps
outlook you make more profi table
of that future. If you are a decisions. Economics is not
manager or business owner something different from
you need economic infor- business management; it is
mation—but you need it run a business, division, or part and parcel of many ev-
from a business viewpoint. department, this book is eryday business decisions.
Put more specifi cally, you for you. If your “to do” list Luckily, this book makes
need Businomics. If you includes decisions about economics painless.
William B. Conerly, p .d.
h
Economist, Conerly Consulting, L.L.C.; Senior Fellow, the National Center for Policy Analysis

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BUSI NOMICS
MONEY TALK
From the Headlines
to Your Bottom Line
—How to Profi t in Any Economic Cycle
W B. C , P .D.
illiAM onerly H
Economist, Conerly Consulting, L.L.C.;
Senior Fellow, the National Center for Policy Analysis
AVON, MASSACHUSETTS
ii
To my wife, ChrisTina, and my sons, PeTer and Tom,
who endured my long hours of foCus on The book,
who suPPorTed The efforT, and who CelebraTed
wiTh me iTs evenTual ComPleTion.
Copyright © 2007, William B. Conerly
All rights reserved.
This book, or parts thereof, may not be reproduced in any
form without permission from the publisher; exceptions are
made for brief excerpts used in published reviews.
The Platinum Press® is a registered trademark of F+W Publications, Inc.
Published by
Adams Media, an F+W Publications Company
57 Littlefield Street, Avon, MA 02322 U.S.A.
www.adamsmedia.com
Printed in Canada
J I H G F E D C B A
Library of Congress Cataloging-in-Publication Data
Conerly, William B.
Businomics / William B. Conerly.
p. cm.
Includes index.
ISBN-13: 978-1-59869-119-1 (pbk.)
ISBN-13: 978-1-44050-099-2 (EPUB)
ISBN-10: 1-59869-119-8 (pbk.)
1. Managerial economics. 2. Strategic planning. 3. Business. I. Title.
HD30.22.C66 2007 658—dc22 2007000865
This publication is designed to provide accurate and authoritative information
with regard to the subject matter covered. It is sold with the understanding that
the publisher is not engaged in rendering legal, accounting, or other professional
advice. If legal advice or other expert assistance is required, the services of a
competent professional person should be sought.
—From a Declaration of Principles jointly adopted by a Committee of the
American Bar Association and a Committee of Publishers and Associations
Many of the designations used by manufacturers and sellers to distinguish their
product are claimed as trademarks. Where those designations appear in this
book and Adams Media was aware of a trademark claim, the designations have
been printed with initial capital letters.
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Contents
iv Acknowledgments 148 chapter 7
Managing through the
v IntroductIon Business Cycle
Better Decisions
through economics 171 chapter 8
Foreign economic Cycles:
1 chapter 1 the extra Worries of the
It’s not Just about overseas Manager
Forecasting
200 chapter 9
10 chapter 2 Regional economic Cycles:
Cycles in Your sector Your Local economy
of the economy
221 chapter 10
40 chapter 3 Industry Cycles:
How to Anticipate Be Prepared for trouble
Recessions and Downturns in Your sector of the
economy
90 chapter 4
Inflation: Recession 234 chapter 11
triggers and Profit economics and the
squeezes stock Market
110 chapter 5 247 chapter 12
Planning for a Downturn: the economic Case
Vulnerability and for America
Flexibility
255 appendIx
128 chapter 6 Data sources
the early Warning system:
Radar for Business 261 Index
iii
ACknoWLeDgMents
My friend and fellow economist Bob Whelan combines a
head full of trivia with brilliant creativity. When my ency-
clopedia fails me, I give Bob a call. His contributions to this
book were substantial, even though I didn’t take all of his
suggestions (and thus he and the others who assisted me are
innocent of any errors that remain in the book).
Scott Conyers, Portland’s ace investment manager,
helped me unravel my own confused thinking in the chapter
on the stock market. Peter Guyer used his years of expe-
rience in international trade to correct some errors in the
first draft of the foreign economics chapter. Starr McMullen
and Hans Radtke, two of my colleagues on Oregon’s Gover-
nor’s Council of Economic Advisors, gave the book a thor-
ough reading and made numerous suggestions. My former
research assistant, Rusty Fette, also made many very useful
improvements in the book.
Early drafts of one chapter or another were read by Mar-
garet Marcuson and Melissa Johnson, with each of them
providing helpful comments. Dave Perry gave very valu-
able lessons from his experience in banking and corporate
finance.
My wife Christina West gave me a good layman’s response
to the book, pointing out several sections that were unintel-
ligible as originally written.
Tom Conerly III first put the bug in my bonnet to write
a book. After half a century of sibling rivalry, the younger
brother appreciates the older brother’s confidence in him.
I want to thank my agent, Ed Knappman of New Eng-
land Publishing Associates, for his confidence in this proj-
ect, as well as my editor at Adams Media, Jill Alexander.
iv
BUSINOMICS
INTRODUCTION PLATINUM PRESS
MONEY TALK
Better
WILLIAM B. ConeRLY, PH.D.—In
1776, Adam Smith began his
Decisions great book The Wealth of
Nations with some observations
from a visit to a pin factory.
Through
That may have been the last
time that an economics profes-
Economics sor actually visited a factory.
My experience in over twenty-
fi ve years of applying econom-
ics to business problems has taught me that managers and
owners need economics, but they need it from a business
viewpoint. That is, they need Businomics. The goal of this
book is to help business leaders make more profi table deci-
sions through a better understanding of the economy.
Economics is not something different from business man-
agement; it is part and parcel of many everyday business
decisions. Let’s consider why economics is vital to business.
In 2001, bankruptcy fi lings by businesses totaled 40,000
cases, up from only 35,000 the year before. Corporate profi ts
were $30 billion lower than in their 1998 peak. Companies
were burdened with excess inventory and idle capacity.
v
Businomics
Recession isn’t the only problem that businesses have. In
2004, major steel producers were unable to provide product
to all of their customers because of surging global demand
for steel, primarily for construction. In 2005, tires were in
short supply. Some purchasers of trucks and off-road min-
ing equipment had to accept new trucks without tires—the
dealers told them they could buy the truck, but tires weren’t
immediately available. These tire companies and the cus-
tomers that depended on them should have been able to see
the changes in world economics that were impacting them.
The signs of impending shortages were there, but they were
not incorporated into critical business decisions.
In a perfect world, businesses would be able to serve their
customers’ needs, with neither excess capacity and inven-
tory, nor insufficient capacity and inventory. Businomics
was written to help businesses create that perfect world.
If you love the pure theory of economics, in all of its
mathematical elegance, this is not the book for you. This
book is neither mathematical nor elegant.
However, if you think you need to know something about
the economy to run your business, division, or department,
then I definitely have something to say to you. If your to-
do list includes decisions about staffing levels, inventories,
capital expenditures, or financial structure, then this book
has much to offer. If your “business” is a nonprofit organi-
zation or a government agency, you too will find Businomics
immensely valuable. If you want to understand your invest-
ments in real estate or stocks or bonds, this book will help
you there, too.
In this book, I’ve tried to make economics painless.
Businomics targets people who have chosen not to become
professional economists, but who also know that they need
vi
Introduction
to understand how the economy affects their enterprise and
their investments. I don’t pretend that you’ll find economics
elegant, beautiful, or enthralling. Personally, I find econom-
ics to be all of these things. So do most of my colleagues in
the profession, and that is why we became economists.
In a long career in business economics, I’ve met many
businesspeople who have been exposed to the splendor of
economics. Most of them liken economics to abstract art.
They don’t understand it, and they don’t understand how
anyone could find it beautiful. They nod their heads at the
abstraction to pretend that they understand it, while they
spend their time worrying about more immediate concerns
like their sales targets in the southwest division.
Unlike my academic colleagues, I won’t try to show the
beauty of economics. Instead, I’ll give you the tools to fig-
ure out why your organization did not hit its numbers in
the southwest division, or in any other situation you may
be faced with. I’ll tell you how to learn to anticipate when
your vendors will hit you with a cost increase. I’ll advise you
on how to look for new market opportunities. In short, I’ll
explain how economics can help you run your business more
profitably. This book will help you to apply economics to
your business, nonprofit, government organization, or to
your investments.
Notice that I’m not promising to give you the answers
themselves. The answers change from year to year. To know
this year’s answers, either hire an economist or read on and
learn how to figure them out yourself. Once you learn how
to figure out the answers, you can do a lot of your own eco-
nomics on the fly, adjusting your operations as the economy
unfolds. You don’t have to like watching the economy for this
book to be valuable; you just need to be interested in growing
vii
Businomics
your profits. Even if you have economists on staff provid-
ing you with forecasts, Businomics will help you connect the
dots between the economy and your business decisions.
Businomics is designed to make monitoring of the econ-
omy routine and easy so that you can spend most of your
time serving customers’ needs, confident that you have a sys-
tem in place that will alert you to critical changes in the eco-
nomic environment. After reading this book, your increased
understanding of the economy will enable you to make bet-
ter decisions, ones that will lead to greater success for you
and your company.
viii