WHAT IS THE “E” GAP?

Posted on | December 8, 2009 | 3 Comments

How will we recover from this recession?  This “GREAT RECESSION?”

How will we recreate the 8.2 Million lost jobs?

If you think the Congress or President Obama or the Federal Reserve is going to be part of the solution, then this article is not for you.  You are simply not in the right starting place fully to appreciate this blog.

The solution will not be big government or even big business.  Government does not save jobs or even create jobs.  Government can hinder or facilitate the business community in its natural endeavor of generating profits, which requires manpower which translates to jobs.  So, starting from that point, why won’t an economic recovery immediately generate more jobs?

I assume that the overwhelming majority of economists are correct that this will be a “jobless recovery.”  Here’s what that looks like visually:

The “E” Gap

The difference between economic growth and job creation is what I call the “E” Gap.  As explained below, the “E” Gap represents a void that will trigger the greatest wave of entrepreneurship we have witnessed since the end of World War II.

The precise numbers in the chart above are irrelevant, so please do not focus on the values that I have assigned here or the rates of GDP growth versus the rate of job creation.  Those are not the issues here.

If you start with the proposition that GDP or economic growth will out-pace job creation, then you must accept that there will be a “jobless recovery.”  That will be true, at least, in the sense that economic activity will increase faster than net job creation will grow.  I do not believe that those 8.2 million jobs will return in the same form as existed before the Great Recession started.  Here’s why:

1. Employers were extremely confident prior to the recession.  Employment is a measure of confidence in the economy.  If an employer is confident in the future, it will hire more employees in anticipation of future growth.  There are no indications that employers will exhibit the high levels of confidence that predated the recession.
2. Taxes, particularly employment taxes, healthcare costs, etc. will surely increase in future years.  These pressures will increase the costs of labor, which will cause the demand for labor (employment) to drop or at least not grow as quickly.
3. Employers will innovate in ways that will reduce the demand for employees.  Some of the best innovations result from the necessities created during difficult times-  RECESSIONS!  Unfortunately, innovation often means less need on labor.  Machines, computers, new devices, software, processes, etc. are being created right now, all in an effort to reduce costs.  Labor happens to be one of business’ largest costs.  Do the math.  Jobs will be lost forever.
4. Many manufacturing jobs have been lost forever.  Take our two largest job-producing industries: automobiles and homes. 
5. Employees seemingly distrust employers more today than in many decades.  The level of employer-employee and employee-employer disloyalty may have never been higher.
6. The Baby Boomers will be working longer, because they are living healthier lives for longer periods of time, and they have lost their retirement savings.  They can, want and must work longer, which will increase the supply of labor.

The bottom line:   SOME JOBS HAVE BEEN LOST FOREVER.

But, people have to eat, you say.  I agree.  In fact, I think that people want more than just food to eat.  I think people like to wear clothes, sleep in nice homes, drive cars, go to the movies, buy mp3 players, etc.  The unemployed will, sooner than later, find a way to earn a living.  And, businesses will still need services, innovation, talent, experience, etc.  While these needs normally translate into job creation, all indications are that jobs will trail economic growth.

If you can’t find a job, you create one!  I challenge anyone to disprove that proposition.  Even during the Great Depression, people found ways to survive.  Odd jobs eventually became services which grew into companies, which employed other people, and so on. 

Entrepreneurs will create their own jobs, build new enterprises and, in turn, create even more jobs.  AND THAT’S CALLED ENTREPRENEURSHIP.  Employers won’t hire back the 1,000,000’s of unemployed.  The unemployed will start small businesses, form partnerships, or work for a start-up or emerging company.  Job creation will start with the small venture and grow from there.  Don’t expect Uncle Sam or even Uncle Sam Walton (Wal-Mart) to create tomorrow’s jobs.  Look at today’s unemployed, highly skilled, experienced and hungry worker, middle manager or recent MBA graduate.  Those are tomorrow’s entrepreneurs who will restart the job market and create the economic recovery that will generate jobs and better wages.

More on entrepreneurship and the economy in years to come in a future blog.  Here, I wanted to cover the basic concepts that will create the “E” Gap.

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Matthew A. Griffith is a business and real estate attorney, entrepreneur, business success coach and investor.  He guides small business owners, management teams, inventors and investors to profitability using both time-tested and innovative business ideas, methods, tools and techniques.  For a consultation, contact him via email-  griffith@indiana-attorneys.com

The Recession Is Over!

Posted on | June 1, 2009 | 4 Comments

The recession is over!      Probably.

We will continue to feel the pain of the recession for many months to come, but the leading indicators are showing that we hit bottom already or soon will.  A recovery will come in spurts, but we will see a gradual climb in economic activity and growth starting this summer or early fall.

To understand that the recession is over, you need to understand the difference between a leading indicator and a  lagging indicator.  The former indicates the level of future economic activity, while the latter shows us the depth of past economic inactivity.  Housing is a leading indicator.  Employment is a lagging indicator.  Thus, we will see high unemployment for some time, and those data will reflect the passing recession.

Each day, more and more financial experts and economists are publicly stating that the recession is over, and the data show that to be the case.  For example, new housing inventory data are showing improvement in the housing market.  Historically, unemployment figures do not recover for six months after the end of a recession.  So, if the recession just ended, employment likely will not start to rise again until the end of 2009, or in early 2010.  Layoffs are already starting to slow down, and new unemployment claims are starting to bottom out.  Large employers are increasingly reluctant to lay off talented workers, although hiring has not increased yet.

Unfortunately, the insanely high levels of federal borrowing and spending, most of which will not start until 1010, will throw us into a period of high inflation and a “echo” recession in two to three years from now.  The good news is that this recession has ended, and better times are months, not years, away.  The bad news is that federal spending is going to trigger a subsequent recession and devalue assets held today.  The really bad news is that the federal government will be broke in 2011 (It’s already broke, to be accurate.) and will be unable to repurchase debt to control inflation.  So, the Federal Reserve will have no choice but to choke growth and try to slow inflation with high interest rates.  Inflation is the next hurdle we will have to clear, before the economy can fully recover.

Armed with this news, what changes are you making to your business?  What are you doing to prepare for higher inflation and the “echo” recession in year 2011 or 2012?

Recessions Offer Opportunities

Posted on | May 20, 2009 | No Comments

During a recession, marketing is often the first budget item to be cut, even though marketing is the most important tool a business has during difficult times.  I would argue that now is a great time to make lemonade out of “economic lemons.”  There are at least two ways to do that.  First, consider this a time to reach out to potential strategic partners to develop co-marketing and co-sales opportunities.  You might also have opportunities to re-package, or distribute products or services differently to reach new customers or old customers in new places or ways.  Creativity can be developed, grown, nurtured and fostered, but only if creativity is first valued.

Does your company value creativity and calculated risk-taking?

Really?  How?

Secondly, consider whether your customers’ needs or motives have changed.  If so, your message should change to reflect new customer needs, wants, desires, anxieties, etc.  Consider a few examples recently shared by Raquel Richardson, owner of Silver Square, in a recent e-newsletter:

• A-1 Steak Sauce’ changed its message to-  “A-1 Steak Sauce isn’t just for sirloin anymore.”  The target was hamburger lovers, and the strategy worked.
• Dow’s Ziploc food bags saw increased sales when Dow shifted funds from glass cleaners to help introduce a new line of Ziploc freezer bags that protect the freshness of leftovers.
• Quaker Oats developed new recession-driven messages:
  • “Grain products are inexpensive sources of protein.”
  • “Oats for breakfast cost just pennies a day.”
• Lipton pushed up its soup sales by promoting packaged cups of soup as both convenient and inexpensive.

Several companies have gone so far as to mention the recession in its messages.  Wendy’s message is: “Look, I know you have less to spend these days, but that doesn’t mean you have to eat less.”

The list of companies that have enjoyed increased market share by spending more on marketing during recessions is long and storied.  Interestingly, in each case, the competition spent less on marketing and tried to “ride out the storm.”  When your competitors are avoiding risks and pulling back, they are potentially losing both today’s and tomorrow’s customers, and future opportunities.  That’s your chance to gain market share that will likely mushroom when the economy recovers.