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

189 Pages·2007·1.92 MB·English

by  William B. Conerly

BUSINOMICS
MONEY TALK

From the Headlines to Your Bottom Line — How to Profit in Any
Economic Cycle
WILLIAM B. CONERLY, PH.D.
Economist, Conerly Consulting, L.L.C.; Senior Fellow, the National
Center for Policy Analysis
Copyright © 2007, William B. Conerly
All rights reserved.
This book, or parts thereof, may not be reproduced in any form without
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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
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T , C , P T
O MY WIFE HRISTINA, AND MY SONS ETER AND OM, WHO ENDURED MY LONG
HOURS OF FOCUS ON THE BOOK, WHO SUPPORTED THE EFFORT, AND WHO CELEBRATED
.
WITH ME ITS EVENTUAL COMPLETION
CONTENTS
Acknowledgments
I
NTRODUCTION
Better Decisions Through Economics
C 1
HAPTER
It's Not Just about Forecasting
C 2
HAPTER
Cycles in Your Sector of the Economy
C 3
HAPTER
How to Anticipate Recessions and Downturns
C 4
HAPTER
Inflation: Recession Triggers and Profit Squeezes
C 5
HAPTER
Planning for a Downturn: Vulnerability and Flexibility
C 6
HAPTER
The Early Warning System: Radar for Business
C 7
HAPTER
Managing Through the Business Cycle
C 8
HAPTER
Foreign Economic Cycles: The Extra Worries of the Overseas
Manager
C 9
HAPTER
Regional Economic Cycles: Your Local Economy
C 10
HAPTER
Industry Cycles: Be Prepared for Trouble in Your Sector of the
Economy
C 11
HAPTER
Economics and the Stock Market
C 12
HAPTER
The Economic Case for America
A
PPENDIX
Data Sources

ACKNOWLEDGMENTS
My friend and fellow economist Bob Whelan combines a head full of trivia
with brilliant creativity. When my encyclopedia 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 experience 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 Governor's Council of Economic Advisors, gave the
book a thorough 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 Margaret Marcuson and
Melissa Johnson, with each of them providing helpful comments. Dave Perry
gave very valuable 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 unintelligible 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 England Publishing
Associates, for his confidence in this project, as well as my editor at Adams
Media, Jill Alexander.
INTRODUCTION
Better Decisions Through Economics

WILLIAM B. CONERLY, PH.D. — In 1776, Adam Smith began his great
book The Wealth of Nations with some observations from a visit to a pin factory.
That may have been the last time that an economics professor actually visited a
factory. My experience in over twenty-five years of applying economics 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 profitable decisions through a
better understanding of the economy.
Economics is not something different from business management; it is part
and parcel of many everyday business decisions. Let's consider why economics
is vital to business.
In 2001, bankruptcy filings by businesses totaled 40,000 cases, up from only
35,000 the year before. Corporate profits were $30 billion lower than in their
1998 peak. Companies were burdened with excess inventory and idle capacity.
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 mining 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
customers 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 inventory, 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