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Protectionism doesn't work folks
Here is a recap of the headlines regarding the recent tariff on imported tires:
Obama to impose tariffs on Chinese tires: Obama imposes tariffs on China tires for 3 years, a decision that could anger Asian powerhouse
China Strikes Back on Trade: Beijing Threatens U.S. Chicken, Car Parts After Washington Slaps Stiff Tariffs on Tires
Stocks head lower on US-China trade concerns: Major indexes fall in early dealings amid concerns about US-China trade dispute
Tire Tariffs Are Cheered by Labor: Mr. Obama ordered the tire tariffs after the United States International Trade Commission, an independent government agency, determined that a more than tripling of Chinese tire imports had disrupted the $1.7 billion tire market….President George W. Bush had rejected four similar recommendations from the trade commission, angering organized labor.
“One of the most amazing and overlooked details about the “punitive tire tariffs” is that they were actually opposed by the domestic tire industry (Goodyear and Cooper). It was the United Steelworkers who filed the complaint, not domestic tire workers or the domestic tire industry.” (Mark Perry)
From the NY Times:
Mr. Obama, responding to a complaint by the United Steelworkers, imposed a 35% tariff on Chinese tires for cars and light trucks. China has deplored the administration’s decision, suggesting it caved to domestic support for protectionism. The Tire Industry Association, which represents American tire retailers, said the decision was ill-advised and would lead to higher prices for consumers.
What a difference a value proposition makes!
From today’s Harvard Business Daily Stat:
76% of frequent fliers would switch airlines in order to have Wi-Fi access in the air, according to a new survey by Wakefield Research and the Wi-Fi Alliance. 71% would prefer Wi-Fi over a meal, and 55% would change their travel plans by a day to avoid being out of touch during the flight. 94% say Wi-Fi is “the best thing airlines have done” in the last three years.
OK, admittedly these are stated versus revealed preferences, but obviously, such behavioral change in a relatively short period of time requires a value proposition that is compelling and relevant.
Makes me wonder what value propositions we are putting forth in the green industry that would cause similarly stark behavioral change??? Could it be emphasizing the quality of life enhancements that we offer???
As usual, feel free to weigh in with your own thoughts…comments welcomed.
Unemployment update
The latest numbers, fresh from the Bureau of Labor Statistics:
The unemployment rate went up to 9.7%, reversing the improvement we saw in July. To be fair, “unemployment” is somewhat difficult to measure. For one thing, the way the unemployment rate is calculated doesn’t take into account the people who are no longer looking for work. (You know, the “discouraged workers” we heard about endlessly during the Bush years.) So you could see the economy improve but the unemployment rate actually go up, because more people start looking for work.
Source of graph. Click here for Mankiw’s interpretation of it.
Are We Leaving the Recession Behind
The latest from Robert Barr in the Floral Trend Tracker. He makes a good point about the money that federal, state and local governments are borrowing for their programs.
With a number of economic indicators flashing green over the past couple of months, it sure seems like we’re leaving the recession behind. Even new home sales are rebounding, up 15% in the last three months (May, through July) relative to the three months prior (February through April), even after seasonal adjustment.
But even if we’re in a “statistical” recovery, the economic climate will feel sluggish. Expect to hear a lot about our “jobless” recovery well into 2010, as though that’s a contradiction in terms. It isn’t; the last two recoveries were marked with very low job growth for quite some time. In fact, the jobless recovery of 1992 felt so oppressive that the presidential campaign treated it like a recession: “It’s the economy, stupid!” And 20 months after the recovery began (as was determined later), the poor economy was a key contributor to President George H.W. Bush’s defeat in November 1992.
So it ís not surprising that, even as we get some positive reports, we see that employment is still falling, with the number of payroll jobs 4.2% lower than it was a year ago.
Why such a lackluster recovery? The economy is still making major adjustments to the severe imbalances that created the worst financial crisis since the Great Depression.
Bank lending activity remains low, especially for small business expansion. The willingness of banks to lend to consumers continued its two-year descent during the summer. True, analysts were quick to point out that the declines were less severe than those of a year ago. But still, after the plummet of the past year, we’re still falling to even lower levels today. Bank lending standards across all major loan categories to households and businesses also continued to tighten.
For their part, households are improving their balance sheets ñ saving more and consuming less. Many suggest that this lack of spending is harmful to the economy — as if to be economically beneficial, income should be spent immediately and not saved. But that’s a misconception. It’s easier to see the beneficial effects of immediate spending (Look! They bought cars, homes, and furniture!) but the beneficial effects of saving, while less visible, are nonetheless critical to long-term economic growth and prosperity. More household savings expands the pool of available capital for firms to borrow to expand their business.
That means funding the same level of economic activity will require less borrowing from overseas and lower interest rates in the economy.
Then the issue becomes: if rates are low and funds for lending are available, are businesses willing to borrow and expand production? How confident are they that the economy will be ready to buy their expanded set of products? As always, business confidence and entrepreneurial assurance will need to be in place to generate a sustainable recovery.
Looking long-term, the massive increase in government debt will offset the progress households are making in correcting their debt imbalances. The deficit-to-GDP ratio in 2008 was 3.2%; in 2009 it’s expected to be 11.2%, and the administration ís ten-year forecast projects that the U.S. will exceed $9 trillion in total deficits just over the next ten years. That’s in addition to the $5.8 trillion national debt we’ve already accumulated.
Why is that important for future economic growth? Because the money that federal, state and local governments borrow for their programs can’t be lent to businesses to fund private-sector projects. Consequently, the more we allow the government to borrow, the less we have to channel toward productive investment.
The Success Trap
From the latest BNET — Stanford professor Jeffrey Pfeffer warns against the dangers of making it big:
Recently, my wife and I went to one of our favorite restaurants in Half Moon Bay, California. The experience wasn’t what we remembered; we waited 30 minutes past our reservation before we were seated, and another 15 minutes for bread and water to appear. I started to reflect on how common such experiences are – and not just in restaurants.
Few businesses are able to avoid the “success ruins everything” syndrome. Some firms overexpand and fail to maintain consistent standards, a fate that has befallen numerous restaurants and celebrity chefs that have spread themselves too thin. Others lose sight of their quality and performance standards in the push to grow quickly. Toyota, which built its reputation and economic success on its quality and design processes, recently admitted that it had let those standards slip in its quest to become bigger than GM. Toyota’s newly appointed CEO promised to return the company to its roots, fixing its quality problems and reinvigorating its technical innovation.
Some companies respond to success by resting on their laurels and ceasing to innovate. Microsoft, with its dominant position in many software markets, failed to improve security and other features on its browser after it crippled Netscape. This lacuna in product development permitted Mozilla to rise from Netscape’s ashes, build a more user-friendly browser, and in the process, gain almost a quarter of the browser market.
The complacency that often comes with success provides a window of opportunity for underdogs and upstarts. Witness Apple’s recent dominance over former cell-phone kingpin Motorola and Ryanair’s profits in a European airline market where its larger competitors are losing money in the face of declining revenues.
And it’s not just companies that suffer from success. So, too, do personal relationships. When a group achieves great success, it can split apart with jealousy as individuals each seek credit and a disproportionate share of the resources from their collective accomplishments. Individuals in firms often come to feel that they could make it on their own and really don’t need their colleagues. Such is the story behind the numerous splits in law firms, investment banks, and management consulting companies. As Tommy Chong, part of the counterculture comedy duo Cheech and Chong, remarked in an interview in the Toronto Star, show business, and maybe all business, is like mountain climbing: “When you’re climbing up the mountain, that’s when you really need each other. Then, when you get near the top, it’s over.”
But it doesn’t have to be this way. The key is to understand the basis of your success, whatever that happens to be, and retain a laserlike focus. Michael O’Leary, CEO of Ryanair, has not let the airline’s success change its emphasis on cost-cutting, even at the expense of customer service. Ryanair’s value proposition is cheap fares – and if you want something else, fly another carrier. Southwest Airlines has resisted the temptation to fly planes other than Boeing 737’s and to expand internationally. I understand how important great colleagues have been to my work over the years, so I try to be as generous with credit as possible, work on maintaining these important relationships, and to always be on the lookout for those who can complement my skills.
Yes, maintaining focus and discipline in the face of success is difficult. But the companies that maintain their performance over time do what it takes to maintain what made them successful to begin with. The night before our debacle in Half Moon Bay, we ate at Gary Danko’s, one of the toughest reservations to get in San Francisco. It was our anniversary, and when I expressed some dismay that our table wasn’t as private as I had hoped, a complimentary appetizer arrived almost immediately. Maybe that’s why Danko’s restaurant has maintained its position in the ratings stratosphere while so many other enterprises – restaurants and businesses – fall by the wayside, lured by success into forgetting what made them great in the first place.
I’m sure you have examples of businesses that were able to maintain the bases of their success as they grew and over time, and some that have fallen by the wayside. Let us know those examples and the lessons you draw from them.
Jeffrey Pfeffer is a professor of organizational behavior at Stanford’s Graduate School of Business and is the author or co-author of 12 books including “What Were They Thinking? Unconventional Wisdom About Management.
Water webinar series continues
[youtube=http://www.youtube.com/watch?v=E71XRCijH9E]
The Ellison Chair in International Floriculture announces the second of a 3-part webinar series that focuses on water quality, conservation, and management continues this month on September 15, 2009 at 11:00 a.m. CDT. Dr. Peter Ling of Ohio State University will be our next featured speaker and he will address the topic: Knowing Exactly When to Apply Irrigation Water.
Proper irrigation management is a key to successful plant growth and pest management in controlled environments. Further, limited water resources and public concerns of environmental sustainability are making greenhouse water usage efficiency a priority for commercial greenhouse production. Peter will discuss three aspects of automated irrigation management to achieve high efficiency water usage: when to water, how much to water, and how to deliver water. Starting with an overview of commercial sensors for irrigation management, Peter will also introduce emerging non-contact sensing technologies to determine when plants need water by monitoring plants directly. Using this sensing technology, along with evapotranspiration models to determine irrigation quantity and proper delivery of water, his research team has achieved about 50% water savings in growing plants, using water as a biological growth regulator to improve plant quality.
CLICK HERE — or go to http://ellisonchair.tamu.edu/webinar.htm to register for the SECOND webinar of the series.
HOLD THE DATE for the third webinar of the series! Registration will be open soon. October 20, 2009 – 11:00 a.m. CDT. Dr. Don Wilkerson of Texas A&M; University will our third featured speaker discussing the topic: Water Management that Makes Cents!
CLICK HERE — or go to http://ellisonchair.tamu.edu/webinar.htm to view the RECORDING of the first webinar, which is now available online. Dr. Paul Fisher of the University of Florida covered: What’s in Your Water? Water Quality and Treatment for Pathogens and Algae
Inflation fears calmed…for now.
I received an interesting question from a green industry grower this morning:
I appreciate your informative blog. Thanks. In the January conference we heard that on the rebound inflation will devalue dollars and we should convert cash to inventory as goods will increase in value. We also were advised to convert to fixed rates on loans. Our banker is unsure if we will see this inflation as we have in exiting past recessions. It seems that spending will continue to be weak for several years and commodities which were falsely valued high by traders are still in oversupply and profitable with foreign oil still draining too many dollars from the US at a healthy profit to producers and suppliers. Do you have any thoughts on this now you could post?
I think the best way to attack this question is by examining the usual components of inflation — that is, trends in the producer price index and the consumer price index.
In their report released on Aug 18, the BLS reported that wholesale prices in the U.S. fell more than forecast in July as energy costs receded, capping the biggest 12-month drop on record and showing inflation will not be an immediate concern for Federal Reserve policy makers.
The 0.9 percent decrease in prices paid to factories, farmers and other producers followed a 1.8 percent gain in June. Excluding food and fuel, so-called core prices unexpectedly fell 0.1 percent.
A record amount of excess capacity will prevent production bottlenecks from developing, indicating wholesale prices will be slow to recover even as the economy improves. A lack of inflation was one reason Fed policy makers last week reiterated a pledge to keep the benchmark interest low for an “extended period.”
On the consumer side of things,
U.S. consumer prices fell last month at their fastest annual pace since 1950, an indication that inflation isn’t a threat to the economy or the Federal Reserve. The consumer price index was unchanged on a monthly basis in July from June, the Labor Department said Friday, matching economist expectations, according to a Dow Jones Newswires survey.
The core CPI, which excludes food and energy prices, rose 0.1%, which was also in line with expectations. Unrounded, the CPI posted no change last month. The core CPI advanced 0.091% unrounded.
Consumer prices plunged 2.1% compared to one year ago, the largest 12-month decline since January 1950. Most Fed officials think a positive inflation rate around 2% is consistent with their dual mandate of price stability and maximum employment.
Even regarding inflationary pressures from an increase in the money supply, most economists now (in 2009) feel less inflationary pressures are likely. For example, Mark Perry reports:
There are some economists who are concerned about future inflation because of the loose, expansionary monetary policy in 2008. I don’t think inflation will be a problem, and here’s why:
The chart above shows the annual growth rate in the M2 money supply (percent change from the same month in the previous year, data here) monthly from January 1960 to July 2009. Notice that:
1. There was sustained double-digit money growth in two periods in the 1970s, and that is what generated the high double-digit inflation in that decade. There was double-digit M2 growth for 29 consecutive months from March 1971 to July 1973 (and nine straight months above 13%), and then again for 30 consecutive months from July 1975 to December 1977, with a high of almost 14% growth in early 1972 (see chart above).
2. There was double-digit M2 growth in 1983, but only for 12 months from January to December of 1983, and this monetary expansion wasn’t enough to cause inflation (see chart below). Inflation never rose above 5% for many years after the double-digit money growth of 1983.
3. There was double-digit money growth in September, November and December of 2001, but inflation in subsequent years never got above 5% (see chart below).
4. The peak monetary expansion of M2 in 2008 was below the peaks in 1971-1972, 1976-1977, 1983 and 2001 (see chart above), and during the recent monetary expansion there has been only one month of double-digit money growth, and that was the peak of 10% in January 2009.
Bottom Line: Without sustained double-digit M2 growth, we won’t have anything close to double-digit inflation. And the historical evidence during the two most recent experiences of double-digit money growth in 1983 and 2001 demonstrates that short periods of double-digit money growth aren’t enough to bring about inflationary pressures. And since recent M2 growth during the “loose” monetary policy of 2008 is actually lower than in 1983 and 2001, there probably can’t be any inflationary pressures that will lead to problems with future inflation. In other words, a single month of double-digit M2 growth in January 2009 isn’t expansionary enough to create inflation.
Hope this helps, Mr. Grower.
Importance of social media
Much discussion has ensued lately at various green industry meetings regarding the applicability of social media marketing efforts. Is this something that you should consider for your business? Click below to find out.
[youtube=http://www.youtube.com/watch?v=sIFYPQjYhv8]
HT to Stan for the link.
Home centers down but optimistic
Home improvement retailer The Home Depot, Atlanta, GA, reported sales for the second quarter ended August 3, 2009, were $19.1 billion, down 9.1% from the prior year period. Profit declined 7% to $1.12 billion. “Concerns about the housing market, rising unemployment and softness in the overall economy continue to pressure consumers,” CEO Frank Blake said. “Our business performed well in a down market, we captured market share and drove operating productivity. The combination made for a solid quarter relative to our plan.”
Lowe’s reported net income of $759 million for the quarter ending July 31, a 19.1 percent drop from the same time a year ago; this translated into an earnings per share of 51 cents. Sales dropped 4.6 percent to $13.8 billion, and fell by an average of 9.5 percent in stores open at least a year. Lowe’s management blamed the bad quarter on shaky consumer confidence, bad weather, and a harsh comparison to last year’s quarter, when consumers were prodded into the store by a fresh influx of federal tax rebate checks. But CEO Robert A. Niblock said in a statement that there are signs of a bottoming out in housing and the larger economy, so the company expects D.I.Y.ers to begin trickling back into stores.