Low Oil Prices are Good for the U.S. Economy

Lately the idea that low gas prices raise economic activity has been in the headlines. At $80 a barrel oil is at bargain basement prices that lower the cost on everything from holiday travel to manufacturing costs. Oil is just one more factor in the total cost versus rewards businesses use to project future expansion and production. Can oil continue to spur the economy?

The reason oil has declined is based on four primary factors that include 1.) lower demand during a global slow down, 2.) production by Saudi Arabia, 3.) improvements in American shale oil and alternative fuel developments, and 4) higher levels of efficiency in transportation and equipment. Oil is presently on the market with enough supply as to not demand higher prices.

Oil prices impact the global economy but could have a more profound effect on the U.S. which is not only a heavy user of oil but also a reemerging manufacturing center. According to Tom Helbling of the IMF a 10% change in oil prices has a .2% impact on global GNP (as cited in the Economist). Low oil prices encourage economic growth both nationally and internationally.

Oil prices impact the entire supply chain. It is one of those commodities that influences the cost of resources, manufacturing, transportation, and consumer disposable income in one foul swoop. This is one of the reasons why nations fight wars, create national policies, and develop alternative fuel systems over oil. Their is a good reason why oil is considered the blood of the economy.

Companies that are considering investing or expanding operations will need to take into account the oil and gas prices to determine the cost of business. Any time you can reduce fuel and energy costs it lowers the total cost of doing business. When such lower prices are localized to the U.S. then it creates significant export advantages as products become cheaper to produce.

A strong economy relies on many different factors that range from transactional costs to global demand for products. Oil, and energy in general, is one of those inputs that has a wide impact. Oil will not be a savior for the economy but is is a significant contributor. There will be winners and losers with lower oil prices but for now it appears the U.S. is using it as an advantage.

Wine Review: La Ferme Julien Rouge

La Ferme Julien Rouge is an everyday pleasure wine produced in France. As a red wine it is served with most meat, pasta, and spicy foods. Made from a combination of Carignan, Cinsault, Grenache Syrah it is well balanced option. Seasoned in oak barrels for 10 months it takes on a touch of sweetness.

Nose: Ripe berries, spices and tobacco

Taste: Subtle, cherry, ripe, vanilla, wet, and light aftertaste. Soft tannins.

Glass: Dark red and medium body.

The wine was grown and produced in France on the Mont Ventoux slopes that sits over 5,700 feet above sea level. The area supports high quality grape production and adds to the wines flavor. The type of soil also supports a solid production of mild wines.

According to Food Tourists the region is known for its interesting wines all the way over to mediocre wines. It was part of the Ancient Roman wine making system and still maintains its small town charm. Whites, reds and roses are produced here and exported to the rest of the world.

Why are American’s Quitting Their Jobs?

According to a report by the Bureau of Labor Statistics 57.5% of people who left their jobs did so under their own free will. A total of 5.03 million employees were added which boosted the hiring rate to 3.6%. At the same time 2.75 million people resigned in September with a quit rate of 2%. Make no mistake, the job market is heating up and employees are finding options that were not available to them a few years ago.

When the economy is poor and employment prospects are low employees naturally stay in their jobs for fear that they will not be successful in securing new employment. Likewise, there may be an abundance of people seeking the same position which raises the stakes when attempting to jump ship. It is often wiser to stay where you are at until things get better.

At present the amount of people seeking the same position are 2 to 1. Those are pretty good odds for people who want to beat out the competition. When those odds are 3 or 4 to 1 that makes uncertainty higher. When unemployment declines and businesses start hiring it sucks some of the slack out of the workforce creating advantages for job seekers.

Consider the low unemployment rate of 5.8% there is growing competition among companies to retain top talent. In any recovering economy usually college educated and highly technical jobs are the first to come back. These are the positions employers need to fuel their growth and development.

The people who have fewer opportunities are those in traditional middle class jobs such as manufacturing. Without a reemergence of manufacturing within the country it can be difficult for a person with moderate education and an industry based skill set to obtain better employment unless the entire industry comes back.

Job hopping is one sign of an improving economy. This means there is some flexibility within the market and realignment going on. During the recession realignment is painfully based on lay-offs but in good times realignment is more voluntary based on the opportunities of workers that want to better their position. Work environment, compensation, culture, promotion, etc… all play a factor in a person’s decision to stay or move.

http://www.bls.gov/news.release/jolts.nr0.htm

Can Small Businesses Use Size as a Recruitment Strategy?

Recruitment and employee loyalty are an important functions in any business but can make or break a small businesses. For smaller firms a few bad hires can really cause financial havoc. Not only is there lost time and money expended on poor hiring practices but also the cost of training. A paper by Allen, Erickson and Collins (2013) delves into the importance of developing employee commitment as it relates to revenue growth and firm performance. 

One of the very first criteria is that leadership must have a solid vision of the organization. Without a solid vision the overall hiring processes and the type of recruit will naturally be misaligned. Recruitment starts with knowing the type of person needed, their skill set and how that position will help achieve the organizational vision. 

It is often assumed that prestige and money are the most important factor in recruiting high quality employees and helping ensure they are retained for a significant period of time. Sometimes, highly paid industries are able to recruit bright minded people but these same people bounce from employer to employer seeking higher levels of compensation. 

Small businesses are limited in resources and simply don’t have the ability to keep increasing the pay to recruit and retain employees. They will need to compete where their organization is most likely to be successful-and that has nothing to do with size. The interactivity and relationships built in a small business can have a more profound impact than pay and prestige. 

Firms that follow an employee commitment strategy create attachments based on relationships, company identity, coordination of autonomy and informal control, and selecting employees based upon firm values. Such organizations are not command and control structures and seek to improve upon the positive affectivity the employee has with the firm. 

This is different than what you might find in larger organization. Even though large organizations seek to create stronger cultures it is much more difficult than smaller firms. The sheer size and power-distance relationships can be difficult to overcome. Instead many firms focus on compensation and prestige as driving factors. 

Nearly 65% of all hiring is based in smaller businesses. It is important for such businesses to focus on using their core strengths where size can actually be a detriment. Hiring people based upon their value systems, encouraging them to be independent in their thinking, foster close relationships, and creating commitment to the firm are important for success. 

Relationships and sense of belongingness can go a long way in gaining commitment. People are social creatures by nature and will stay in organizations that they develop positive and meaningful relationships. Smaller businesses offer an opportunity to socialize employees to a smaller group of people they can develop deep relationships over time. A family like atmosphere can be a significant draw for talent.

Allen, M., Ericksen, J. & Collins, C. (2013). Human resource management, employee exchange relationships, and performance in small business. Human Resource Management, 52 (2).