Businomics From The Headlines To Your Bottom Line: How to Profit in Any Economic Cycle PDF
Preview Businomics From The Headlines To Your Bottom Line: How to Profit in Any Economic Cycle
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 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. This book is available at quantity discounts for bulk purchases. For information, please call 1-800-289-0963. 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
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