The big news today is the announcement from the U.S. Federal Reserve about their new proposal (that must pass Congress) on overhauling the methods they use to regulate the financial markets. The idea is to give the Federal Reserve more power to protect the stability of our entire banking and financial system. Although I believe the Fed’s actions are prudent, I still believe there is a major disconnect between Wall Street and Main Street.

Equity investors are making decisions about where to put money based on what will happen over the next few months, small business owners make investments based on what they believe will happen over the next few years. There is little doubt that the economy is hurting, I personally believe we have already reached the much dreaded recession. This does not mean business as we know it stops, it just means we have to fight much harder for that business we know is out there. As I started thinking through this today, I began pondering what I believe are the biggest economic issues facing all of us going forward, these are the areas where I foresee the most rough air!

1. Job Growth – We have lost 85,000 jobs so far this year, and I suspect we have lost more in March. New job growth in the U.S. has been at best sluggish since 2000. So far this decade we have generated roughly 5.5 million new jobs, which puts us on pace to have the worst decade for new job growth since prior to World War II. I believe we are likely paying the price for trade liberalization. Manufacturers have exported a number of jobs since NAFTA was passed and China received MFN status. At some point the amount of jobs being exported will level off, we are not there yet. If the economy is not creating jobs, then we are not adding new consumers, the mother’s milk of our economic engine. I expect the tepid job growth picture will continue for a few more years before we get back on track.
2. Oil Prices – Although much of the price of oil, the value of the dollar, and our economic health work hand-in-hand, I don’t foresee the price of energy receding in the future. We are dealing with a supply and demand issue. As other economies have grown, and those economy’s population’s get more money, the demand for energy increases. This increased demand pushes up prices at a time when the available supply appears to be diminishing, and getting to new sources of oil is getting more expensive. People who are waiting for gas prices to come back down are going to be waiting a long time. The steady rise of gasoline prices will continue until people start making lifestyle adjustments to offset demand. These increased energy prices hit businesses and consumers alike making it more expensive for everyone.
3. Inflation - In an environment with interest rates coming down and energy prices going up the prospect of energy driven inflation is not foreign. As energy prices rise many businesses must pass along those price increases to their customers to keep pace. The end result is a ripple effect that moves through the economy much like the negative impact of the downturn in housing did. At the end of the day this means we are all paying more for our basic needs, this means we have less for other consumer goods, and keeps the economy cooled for an extended period of time.
4. Cheap Credit – I didn’t say easy credit, I said cheap credit. Given all of the fallout from the subprime crisis, and lender’s concerns about defaulting loans, I suspect we are headed for a period of cheap credit that is difficult to get. This will make it harder for businesses to invest and consumers to pay for purchases temporarily using someone else’s money. Interest rates are going to go lower over the next few months as the Fed tries to stimulate growth, but the number of folks that will be able to take advantage of this cheap credit will be limited.
5. A Falling Dollar – I look at the value of the dollar as an indicator of the value of one share of the U.S. economy. The dollar will continue to fall against other currencies as the Fed reduces rates. We may make some of this up as other economies slow, but the general trend will continue to be down. This is increasing the price of imported goods in the U.S., and travelling outside the U.S. As our share price goes down, our debts are going up. This does not sound like a great formula for business success!

Most of these are likely not a major surprise to anyone that has been following the economic news lately. These are without a doubt five issues we will need to get our hands around if we want to move this economy forward!

There has been  a great deal of speculation by executives and pundits alike about whether the U.S. economy has slipped into a recession, or is is just experiencing a dramatic slowdown. This debate will continue to rage until we get some solid 1st quarter GDP numbers; however, there will be some data this week that may provide us a clue. The economic news to focus on in the coming week will be the Institute for Supply Management’s Manufacturing Survey on Tuesday, and their Services Survey on Thursday. Both of these will give us a peek at current business activity. On Friday we will get the employment numbers for March. If employment job growth comes in negative for the third consecutive month, then that would be a pretty clear indication the economy has slipped into a recession.

“They’re from the government, and they are here to help!” On Monday the U.S. Treasury Department will go to Congress with a proposal that expands the Federal Reserve’s authority when overseeing financial markets. The bottom line is that the Fed will be able to aggressively address areas of the market and institutions that have the potential to bring the market down. I can’t say I am exactly comfortable with giving the folks who caused the problem more authority to solve it!  

I ran across this article in The New York Times this week about the challenges small businesses are having borrowing money in a tight credit environment. Although I have no doubt that borrowing today is a challenge, I believe there are things every small business owner can do to make raising capital for your business an easier task. Not long ago I posted an article with some suggestions on raising cash in a tough environment. I thought it appropriate to re-visit the issue  in the light of this article.

Our second consumer sentiment measure this week shows the same trend as the first, consumers are losing confidence. The University of Michigan’s Consumer Sentiment Survey dropped again in March. A slowing economy combined with rising energy prices is causing consumers to worry about their future spending power. The data continues to reinforce a sharp slowdown in the U.S. economy over the last six months.

The U.S. Government released its final estimate for Gross Domestic Product growth in the fourth quarter of last year. The final estimate remained unchanged at .6 percent, a marked slowdown from the third quarter of 2007. This final number, combined with the loss of jobs in January and February, brings me to the conclusion that the U.S. economy slipped into a recession in the first quarter of this year. I think this could be confirmed we when we get employment numbers for March next week. 

The most common question I get whenever I speak to a group of business owners is, “How were we able to grow our business so successfully?” Our family business, founded by my father-in-law in 1963, was a manufacturer of custom machine controls. In the mid 1990s we began developing a line of ultrasonic sensors.At that time ultrasonic sensors were not even a recognized segment of the broader $2 billion global, sensor market. Through a tremendous amount of effort during my tenure we were able to grow our sensor business 18 percent annually, develop a recognized market segment in sensing, and become the world’s leading manufacturer of ultrasonic sensors.Many business owners want to know the secrets of our growth story. I always tell them the secrets to our success are not secrets at all. Most business owners and executives know what they must do to grow their business, but many just can’t seem to get these things done. As a business owner, if you can execute on these seven items, you will grow your business.

1. Find a Niche – The biggest mistake many small companies make is aiming at huge markets. Most successful small businesses started by aiming at a niche they could develop. Many times it will not pay a larger corporation to do the hard work to develop a small market niche. What may be a huge market opportunity to one, may be insignificant to another.
2. Have a Clear Value Proposition – Make sure you clearly understand what value you add for your customer. If you cannot articulate this to yourself how will you be able to convince prospects to do business with you? You must be able to clearly articulate what you bring to the table.
3. Target Your Communications – Once you have a clear value proposition, make sure that message is getting to the right people. One of the mistakes we made was trying to outshout the competition. Know who your customer is and figure out your best method for delivering your value proposition to them.
4. Provide World-Class Service – I despise poor customer service. Many large companies, because of mass, have a difficult time providing great, consistent customer service. All successful small businesses I know provide their customers with unparalled service. If you take care of the customer, many other things will fall into place.
5. Treat Your Vendors Well – You may not be your vendors number one customer. Your volumes may be small, but if you treat those vendors well you will get better attention than their largest customers. Pay your vendors quickly, have them involved in your business, and spend the time to cultivate relationships with them. You never know when you will need a vendor to save your “hide.”
6. Treat Your Employees Well – One key to growing a small business is finding great people and keeping them. There is always more perceived risk working for a small company than a large company. If you provide your employees a great place to work, and give them the autonomy to do their jobs, you will create a workforce committed to making your business a success.
7. Keep Feeding the Fire – Too many businesses develop one product or service offer and stop there. Don’t let innovation die. One of the most important aspects of our growth story was our effort to always have something new that would bring additional value to our customer. Never be afraid to cannibalize you own product, if you don’t someone else will.

It does not matter what your business is, or what your growth goals are. You must remember, this stuff isn’t easy. If it was, everyone would do it!

Sales of new homes fell to a 13-year low in the U.S. this past month. This is the fourth month in a row new home sales have declined, and is further evidence that depressed economic activity has led the U.S. economy into recession.

The bad economic news continues to trickle in this week as the government released data on February’s Durable Goods. Orders for durables were down a surprising 1.7 percent in February with big drops in autos, business spending, and machinery. This reinforces our post from earlier today that the economy is likely already in a recession!

Although, yesterday’s news was dominated by Senator Clinton’s epic war saga, the real story of the day was the Conference Board’s Consumer Confidence data which plummeted to a five year low. The CEO of Caterpillar said that he believes the economy is already in a recession. The good news is that if we are in a recession now that means we are getting much closer to an economic recovery.