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Showing posts with label economy. Show all posts
Showing posts with label economy. Show all posts

Tuesday, February 21, 2017

Can Innovative Clusters Protect the Economy from Recession?

Recessions can be brutal and countries often suffer from the magnitude of global changes and shifts that can impact their economic well-being. While they search for solutions to strengthen their economic position among lower cost emerging nations they should consider the benefits of developing clusters. According to a study entitled Coping with Economic Crisis-The Role of Clusters published in European Planning Studies, clusters offer a ray of hope in fortifying an economy from recession.

When the global economy adjusts there will be winners and losers. Some nations will pick up additional manufacturing while others will lose manufacturing. When times are good more people will be employed, while when times are bad people will be unemployed.  Europe and the U.S. has lost jobs over the past few decades due to the cheaper cost of manufacturing in places like China, Asia and India.

The only true competitive position that Western countries can make is to be more innovative and development oriented than emerging nations. They must lead the market with new products and services in order to ensure their offers gain the most market attention and interest. Clusters offer an opportunity to capitalize on Western ingenuity in a way that keeps manufacturing and jobs at home; even when the global economy shifts.

The study looked at Norwegian clusters and used surveys and data from four cluster organizations to determine how they acted under economic pressure (Skalholt & Thune, 2014). The economic time-frame use for the study was a recession from 2009 to 2010. They looked for innovative strategies, roles and activities of the clusters during the crisis, and the differences in behaviors of mature clusters.

The study found that mature clusters adapted to economic recessions by putting forward new innovative strategies, increasing collaboration with other businesses, and engaging in developing their workforce. A big concern was that lenders slowed down available investment capital and this choked off innovation. The study highlights that when monies were available, clusters were able to overcome challenges by developing new innovative products/services even while the global market was slowing.

Monday, April 20, 2015

Middle Class Anxiety? A Factor of Employment and Savings



The middle class is the backbone of American society. It is a large slice of American pie that builds our cars, delivers our products, and sells us our next gadget. Like other classes, the middle class has their own concerns and fears over employment opportunities and the ability to put money away for the future.  Helping them transition to the new economy can go a long way in saving people from pending grief.

According to a Pew survey 47% feel they are solidly middle class, 11% upper middle class, and 29% lower middle class (As cited in Novak, 2015). Only 1% considers themselves upper class while 10% viewed themselves lower class. Entry into middle class is still an important part of the American dream and forms our class consciousness.

Without doubt the world is changing and jobs will change with it. A person in the middle class, earns around 30K to 100K per year based upon the state, obtains a college degree or trade certificate and can normally find gainful employment. They may run into a few hiccups here and there as they transition from one job to the next but still expect to support their families. 

The problem is that the economy is transitioning and some of the jobs are being phased out while others are growing. This means that occupational choices made a decade ago may not be relevant in the next decade. Training and education is one option in helping middle class workers find new occupations when job prospects dwindle. 

If this is the only problem then people should be jumping for joy as a training course, a college degree, or attending a few seminars should do the trick. Middle class people also have other challenges that include declining employment opportunities and high debt loads that make them less nimble for change. It can be difficult to make a transition when people are living paycheck-to-paycheck. 

 Middle class spending power is declining but pressure to buy more and do more with less is rising. Food, shopping and entertainment take an increasingly larger percentage of middle class and upper class disposable income creating a problem with savings (Marte, 2015). With less money in the bank the risks to catastrophic change rises creating higher levels of stress for families.

Helping people move from declining occupations to growing occupations where they can earn a bigger paycheck is important. Likewise, helping families with financial options that leads to a brighter future is beneficial for reducing long-term stress. The middle class is an important part of the American dream but they may need some help from time-to-time to make transitions when the economy changes. 

Marte, J. (2015). Some in upper-middle class also struggle to save. Dispatch. Retrieved http://www.dispatch.com/content/stories/business/2015/04/19/01-some-in-upper-middle-class-also-struggle-to-save.html

Novak, M. (2015). 87 percent of Americans call themselves some version of 'middle class'. Gismodo. Retrieved http://factually.gizmodo.com/87-percent-of-americans-call-themselves-some-version-of-1697524227

Tuesday, March 24, 2015

Will China Experience a Prolonged Period of Slower Growth?

China's greatest asset to growth was its cheap manufacturing base that drew investment and interest in low cost alternatives. Globalization is stripping China of this advantage as other nations find their own competitive ground. China will need to adjust its economic strategy to help it find sustainable growth that doesn't rely heavily on foreign capital accumulation. Changing their investment policies and encouraging long-term solutions will be more helpful than short-term strategies in the next phase of China's economic life.

China has been known as a great place to produce products because of a business friendly government, lower labor costs, and less environmental restrictions. This cheaper cost alternatives encouraged foreign companies to outsource simple manufacturing of parts to Chinese companies. This create a net influx of foreign dollars that fuel growth over the past couple of decades.

The country's production capacity was based on its ability to partner with outside companies seeking to shave costs. As Chinese industries learned new skills and abilities they developed many of their own products based upon existing product models. A few industries developed advanced models of products but this is still not the mainstream much of China's manufacturing sector.

Now that countries like the U.S. have achieved cost parity due to high technology and productivity improvements the benefits of outsourcing to China have lessened. Therefore, there is downward investment pressure that limits the amount of capital available to Chinese companies. The percentage of companies that have developed independent income streams has improved.

Without the innovative process that comes from a highly skilled and educated workforce Chinese growth is likely to be muted as nations find alternative places to seek resources. This doesn't mean that there is a wholesale disinterest but that such contracts are not as lucrative as in the past and alternative opportunities such as India, U.S. and Eastern Europe are viable options for production.

Think of how the free market works on a macro scale. China went through major economic reforms in 1978 that liberalized and privatized a number of state businesses. Like a hole in the middle of the ocean the capital rushed in and sparked an era of growth capitalizing on a cheap labor supply. It was a nation hungry and ripe for investment. As that hole filled up and costs increased many of the advantages are muted.

China of tomorrow will not grow as fast as it did in the past as alternative investment locations are found and manufacturing parity occurs with other nations. Chinese labor productivity has gained but is running to its limit without mass educational investment that can improve on innovation and technological production. Poor policies that favored pro-Chinese knowledge accumulation at the expense of foreign companies have raised a skeptics eyes to alternative countries with better patent protections.

With an interest rate of around 5% they can reduce that rate to encourage internal growth and development. They may also consider additional infrastructure improvements that connect regions and lower transactional costs. Revamping education to ensure more scientific minds and skilled labor are created can further help in the long run. Changing government policy to open their economy, ensure free and fair transference of knowledge, and focus their investments in high development areas.

The Chinese Tiger has not been netted yet but will need to consider additional reforms that encourage higher levels of growth. Telecommunications, lower shipping costs, and cross-border partnerships are offering cost-quality alternatives to Chinese investment. By reaching out with partners in countries like the U.S. and finding collaborative methods of mutual development with American companies the Chinese companies can further extend their reach.  



Tuesday, February 24, 2015

The Economy Moves from Unemployment to Increasing Wages

As the economy speeds up  Federal Resereve Chair Janet Yellen discusses the growing need to increase interest rates. For now the idea will be reevaluated on a meeting-by-meeting basis to determine when that might happen. Her discussion with the Senate Banking Committee eludes to the idea that her annual target rate will be somewhere around 2% depending on the strength of the economy. For the near future the economy is expected to continue growing. 

The market forces related to the speed of the economy will determine these rates. Interest rates are the cost of borrowing money and is primarily based on demand and supply. As money is soaked up in the economy it becomes less liquid and shortages begin to raise the cost of borrowing that money to mitigate risks.

For example what you pay for a car today would cost you more tomorrow as the product price rises. You wouldn't get that money for free without paying some type of interest on it as the lender takes risks. Getting money today without having to save it yourself must have some cost in case it isn't paid back.

The government sets these rates through manipulating the federal fund rate that large institutions use to charge each other when borrowing money. When government buys securities they flood banks with money and when they sell securities they take money away from the market. The value of that money is impacted by its availability and fluidity.

The government considers adjusting the interest to make sure that inflation doesn't rise too rapidly and choke off employment. However, with unemployment at low levels rising inflation will help push wages upwards better balancing growth income and economic growth. For the moment it appears that unemployment has been solved for many people in society and government is no longer worried about it as much as they were in the past.

Tuesday, February 10, 2015

Americans Think the Economic Chalice is More than Half Full

As Americans we can be a skeptical crew about a whole lot of stuff. One thing we seem to feel good about is future opportunities. According to a recent Gallop Poll 28% think the economy is good, 28% think it is poor, 51% believe it is getting better and 45% feel that it is getting worse (1). For seven straight weeks the consumer economic beliefs have been in the positive providing good news to those who feel the economic chalice is over half full.

The numbers may depend on who you are, your income and education level, as well as your personal disposition in life. Those who are in fast growing industries who are finding their job prospects and income rising may feel more optimistic than those who are negatively affected by shifting economic activity. If your in the wrong occupation and see your prospects dwindling there isn't much to look forward to as a growing economy isn't going to directly benefit you.

The same can be said with those who have not either learned a skilled trade or obtained a meaningful degree with market relevance. Education must match market needs if it is to effectively support one's family and provide future opportunities. Failure to enter into an education and/or learning program will leave some in low wage and low movement occupations competing against outsourcing and automation.

We can't ignore that our personal disposition has something to do with how we interpret information. For example, if we are generally a positive person we are more likely to see positive movement in the economy while if we are more negative we are more likely to see the negative aspects of the economy. Many of us self-select the type of information we see in order to confirm our pre-existing beliefs.

Regardless of the many reasons why a person sees the cup as half full or half empty the movement from a negative perspective to a positive perspective does highlight that perceptions are slowly changing. We find through the past year people have been flat and in the negative ranks. As positive communication in the media and among social networks rose people also started to become aware of the growing economy. That could just push consumer spending upward next month that helps support the economy further creating a self-fulfilling prophecy.

Wednesday, February 4, 2015

U.S. CEOs Optimistic About the Economy and Plan on Hiring

America is pulling ahead as CEO's project a much brighter future with more hiring and greater investment. According to a report by the Young President's Organization (YPO) the U.S. bucked trends of other nations by raising their confidence index from 64.2 to 65. This optimism is a full two points above other countries and has prompted some positive decisions in company strategic planning that will bode well for the American worker.

Net importers of oil were more optimistic than net exporters. The reason this is the case is because exportation of a natural resource can be lucrative but is also unsustainable and limited. Those nations that reaped the rewards in the past may find their economies struggling now that prices are changing and demand is less. Importing nations find the cheaper oil prices an advantage for their production and economy through lowered input costs.

The report had three interesting expectations over the next 12 months that include:

-70% Sales to Increase/26% Sales to Stay the Same/4% to Sale to Decline
-47% Fixed Investments to Increase/48% Fixed Investments to Stay the Same/5% Fixed Investments to Decline.
-45% Expect to Hire/51% Hiring to Stay the Same/4% Hiring to Decline.

The optimism among key decision makers, such as CEOs, help to push additional investment and hiring. You will notice that only a few believe sales, investments, and hiring will decline over the next 12 months while the far majority either believe it will stay the same or improve. Most CEOs feel that sales will improve and this in term could fuel additional investment and hiring.

Those companies that are working with less than full capacity are likely to soak up that slack before deciding to hire. Many companies have adjusted and transformed during The Great Recession and are in a lean position to grow. Future profits are expected as consumer confidence rises and additional economic activity experienced.

http://www.ypo.org/4q14us/

Friday, January 30, 2015

Lower Oil Prices and Optimism Fueling Consumer Spending

The 4th Quarter saw a slow down of growth from 5 to 2.6% but consumer spending popped up 4.3%. This is good news as 70% of the economy functions from consumers spending. Growth might have slowed in the 4Q but people are more optimistic about their future and this can create positive signs for economic growth in the first half of this year.

According to Sam Bullard a senior economist at Wells Fargo, "Sharply lower oil prices do present downside risk to business investment, but accruing benefits to the consumer in the form of lower gasoline prices should increasingly offset the near-term drag(1)."

As consumers save money at the pump and heat on their homes they are naturally going to spend that extra money somewhere. Americans are not great savers. Nearly 75% of people live pay check to pay check while only 25% have enough to cover 6 months of expenses (2). 

If we aren't going to save that money most likely it is going to be spent somewhere. We love to eat, buy clothes, go to the moves, and take trips. All that extra money will make its way into the market to fuel sales and great economic activity. Watch the restaurant, retail, and beauty markets next quarter.

It isn't all about the money saved from oil as this doesn't consume the largest percentage of American budgets. As optimism rises Americans simply like to spend more money. It is the psychological effect of feeling good about one's life and prospects for the future.

Oil isn't the only thing working in American's favor as hiring is increasing and wages are starting to rise. A few percentage points in income could lead to even more spending. As the economy moves forward we will find that the combination of events coming into play at different times will hopefully keep us happy, optimistic and motivated.

Thursday, January 22, 2015

How Will Political Instability Impact Yemen's Economy?

Yemen’s investment opportunities were not necessarily strong before the recent ousting of the pro-American president by the Shia faction Houthi. That investment climate is even more uncertain now. As one of the world’s least developed nations the loss of investment could push the country further into poverty which contributes to greater in-fighting and instability making tribal regions open to foreign influence at the expense of a centralized government.


The long-lasting impact of investment opportunities will make themselves more apparent in the future as the nations tribes and factions determine what routes they are going to take in settling disputes. Any long-lasting heated conflict will likely ensure that investors do not put their money into a politically unstable nation heightening local fighting over resources. Land grabs and resource confiscation could lead to civil war.


Yemen has always been seen as a risky place for international businesses investment so recent instability shouldn’t come as a surprise.  According to the State Department there are opportunities for investing in sectors like energy, infrastructure, fishery, and real estate (1). The problem is that the government has been fairly unstable for a long time and officials can be influenced through bribery, clansman, and religious loyalties that raise legal risks.


As additional political instability takes precedence in the country investment opportunities for locals will dry up as businesses keep their distance and take a "wait and see" attitude. A study that reviewed 37 countries from 1979 to 2000 found that economic and social-political instability seriously hampered private investment (Escaleras & Kottaridi, 2014). Such decline in investments naturally threw a wet blanket on growth and prospects of the country.


Investors are unlikely to engage in further short-term investments within the country. Private investment will slow leaving a vacuum politically and economically that will likely be played out over Yemen’s natural resources like oil. Foreign investors may not be willing to wait for a country that will be in a protracted conflict. The end result is that Yemen will miss some opportunities and be added to the list of Middle East economic casualties.

Escaleras, M. & Kottaridi, C. (2014). The joint effect of macroeconomic uncertainty, sociopolitical instability, and public provision on private investment. Journal of Developing Areas, 48 (1).

Monday, December 1, 2014

Discussing Parks as a Place of Value Through Poetry

Poetry offers a new way of looking at the same thing. A new perspective with enough feeling or insight to challenge our previous assumptions. It doesn't really matter much what the topic of discussion is as poetry is about everyday life. In this case poetry can be about parks and their value to the environment both financially and aesthetically.

Parks and landscaping are used to improve upon the environment. They cost a significant amount of money to build and more money to maintain but they are worth it. There is a reason why we are so attracted to parks and why we as humans enjoy them. We enjoy them so much that those neighborhoods that have parks and landscaping are worth more than those who don't.

Parks are more than simple decoration as they provide activities, recreation and a chance to connect. They keep wildlife in the area and become places where people socialize. Birds and squirrels become actors on our real life television that plays a metaphorical movie from each park bench. At its very root parks remind us of where we came and our backgrounds. We feel comfortable there because nature is where we came from.

 The Priceless Benefits of Parks

Parks are refuges of nature's wild,
Places where the constructed meet the unconstructed,
What costs money today was once born in the wild,
A capsule of time long past.

The birds and squirrels don't seem to care,
Their lives are consumed by chasing nuts and berries,
They can spend a lifetime in the same preserve,
No worries but that which is in front of them.

Man is a different creature entirely,
A park is simply a place to sit,
Somewhere to gain  perspective,
A large decoration on a map.

The value is not in the bushes and trees,
It is a little more than the perfectly groomed lawn,
It is a real life movie to watch on the canvass of a blue sky,
A projector into their past.

We are not much different than the birds and squirrels,
Most of us chase our nuts and berries within a few short miles,
We sit in the parks to remind us of our past, of where we came,
A small reminder of our place in it all. 

Sunday, November 30, 2014

Why We Should Support Small Business Saturday



Small Business Saturday came and went just after the Black Friday Holiday shopping spree. Small business Saturday is that one day where shoppers come out in droves to support their local businesses. For good reason small business is seen as the backbone of the American economy with higher growth rates and potential than many large corporations offer. 

According to the Small Business Administration small business has contributed to 64% of new jobs and 44% of private payrolls. Small business is a significant contributor to the American economy and supporting small business has a long lasting impact on the overall economy. Small Business Saturday is designed to remind us of that importance and support small business through our purchases.

America itself was started and developed from family owned small businesses. It is this entrepreneurial spirit that has helped a great many native and immigrant Americans moving up the social ladder. Even in today’s world small business still stands as a primary pathway for people to move from poverty to wealth. 

If you have ever ran a small business you will soon understand how difficult it can be run one. There are mountains of things to learn, lots of regulations, and a lot of difficulties on the way. The far majority, go out of business, eight out of ten, within the first year. Enthusiasm resigns itself to the cold hard reality of life. 

Supporting small business is about supporting the entrepreneurial spirit within the country. These small business owners may have families, be running part of the year in the red, and have lots of stress. Having one day out of the year to support their efforts is not a bad idea. These businesses can be a strong support for the economy and our neighborhoods.

Friday, November 28, 2014

Black Friday and the Holiday Shopping Season-The Philosopher and the Capitalist

Black Friday is the day that a mass of Christmas shoppers line the store fronts in search of hard fought treasures. This year Black Friday is being stretched from Thursday evening till the end of business on Saturday. Crowds are not so heavy, consumers not so excited, and sales over the entire season will be a better determinant of retail success. Whether you are standing in line or buying over the net consider what Black Friday means to you.

Changes in days are not the only differences you will notice this year. The crowds are a little thinner and there have been a few more protests over excessive consumerism. People simply are not buying everything they can this year and are instead focusing on those big ticket items that save them money; assuming that buying these items are necessary. Many others are skipping the crazy shopping madness and instead searching for their products online.

The problem with Black Friday is not the deals or even the interest. The problem lies in how people rely on buying as many products as possible to show their interest in others. Lots of products and expensive gifts are not the only activity on the menu. Consider the time you spend with others and the memories. Instead of crashing through the door maybe you should take your family out, get lunch, and go shopping together.

The anti-consumer culture crowd came out this year to teach us the value of Thanksgiving. I applaud them for their efforts and the philosopher in me thinks in many ways they are right. I refused to stand in line or worry about whether or not I get a specific expensive item on my "Santa List". Instead, I decided to make shopping this year stretched out over a few months.

Black Friday does act as a marker for holiday season sales. The theory is that if Black Friday goes well then the rest of the year will also go well. Throughout much of the year retailers don't make much money and most of their income is allocated to paying bills and overhead. Black Friday and the holiday season is a time when many turn their red line into a black line for the year.

The capitalist in me hopes the retailers do well and positive consumer sentiment of late fosters higher sales. Retailers are an important part of the economy. They take manufactured products, built from raw materials, and sent to locations by drivers, that are put up on shelves by store workers. This equates to employment, employment, employment. Even Scrooge could understand the connection between employment and bread on Tiny Tim's plate.

Whether your a philosopher or a capitalist, or a little of both, you can appreciate the value of holiday shopping and the meaning of the holidays to a great many people. Perhaps if we focus on what is important to us, and the people we love, we can still enjoy buying products and keeping the spirit of the Holiday Season alive.  Next year shop throughout the year, look for deals, save up your money, and enjoy more of the holiday season doing what you want. Good luck and happy hunting.



Tuesday, November 25, 2014

3Q Economy Picks Up Speed-Offering New Economic Investment Opportunities

Gross Domestic Product (GDP) in the third quarter (3Q) of 2014 grew to an abundant  3.9%. It is always nice to see the economy grow, unemployment decline, housing recover, and consumer spending rise. What is the icing on the cake is the increased business investment that can tell us a lot about how big money is viewing the economy and its prospects. The reemergence of the American economy offers some new opportunities that were not possible in the past.

The global economy may be slowing, China and Europe are propping up their systems, but the U.S. has for a short time been clear from such programs. The slowing world economy should have investors worried but it hasn't. The sour international market may just provide investors a silver lining in the U.S.

The U.S. is not isolated from the global economy and certainly will have some challenges. However, as manufacturing parity improves and infrastructure strengthens the U.S. is in a better position to help investors take their capital and turn it into higher value products with international appeal. The right policies can encourage people to invest.

New investments impact two different aspects of society at once. Investment in declining manufacturing centers that have retained their infrastructure not only offers the best medium for economic development but can also  radically change the financial positions of residents, often minorities, that live in such areas and will benefit from new high paying jobs and ecological improvements.

We can't forget the growing income disparity in the nation and allowing investors to improve upon the lives of city residents while still earning significant profit cannot be underestimated as an important factor. Of course this requires pro-business investment environments that places businesses and residents in win-win situations. Policy makers need to look long-term and make the adjustments now to raise economic growth and better manage their budgets down the road.

As the investment environment falters in previous hot spots the U.S. is starting to look like a good place to invest again. It offers political stability, a growing market, strong infrastructure, and an educated workforce. Cities, that once stood as manufacturing centers, are ready for reinvestment in hub development at bargain prices. Investment brings jobs and jobs bring higher wages and better environments thereby raising the standards of those who live in these economically suppressed areas.






Saturday, November 22, 2014

China Stimulates Economy to Keep Deflation at Bay



Experts predicted the Chinese economy to slow down for the last five years but it never happened-until now. Instead, the economy continued to grow and develop moving from copying technology to inventing some of their own. As the world’s No. 2 economy it has recently recognized that significant slowing in Asia and Europe may be hampering its own growth and it is taking precautionary measures to prop up its position. 

In an attempt to support development and investment it slashed interest rates at the time when American’s have weaned themselves off easy money policies. By injecting credit into their financial system they hope that their banks will lend more money and encourage higher levels of investment. The interest rate on the one-year loan has been reduced to 5.6% while the rate of pay on a one-year savings rate is now 2.75%. 

A low interest and saving rate combination incentivizes borrowing money for growth while discouraging the hoarding of cash by more profitable businesses. Through keeping the money flowing in and out of large banks it sparks higher levels of economic activity. It is believed that lower lending and borrowing rates will spark higher levels of investments. 

China’s economy has been growing through cheaper production costs and higher levels of investment. As the world experiences a slowdown and major nations are stimulating their economies China has decided to jump onboard.  Only the U.S. is projected to keep growing. 

With a growth rate of 7.3% and a decline in housing value the Chinese economy slowed. It is still an impressive number and the Chinese sought to weather into more sustainable growth pattern but a global slowdown has them on edge. China must continue to export at significant levels or risk moving into a deflationary position.