Economic update: Muted recovery expected after recession's end

Recent economic evidence may put to rest Chicken Little’s cry, “The sky is falling” — at least for a little while. A panel of nearly 45 economic forecasters just announced the “Great Recession of 2008-09” is over — albeit recovery will be slow — while chain stores recently saw their strongest sales reading in more than a year. With this information in tow, we also uncovered a few tips to keep costs and inventory management in check to yield bottom-line results as we look toward recovery.

SNEWS® knows the current economic state is important for your business. This is one look at different ways it’s affecting our industries and your business in a periodic and ongoing series of stories in SNEWS. Our most recent report on Sept. 28, 2009, looked at what leading indicators may mean to your business. Stay tuned for more in-depth reporting on the current situation as it develops and changes, from interviews with experts, closer looks at small businesses and how they are coping, to economic statistics, breaking news and how it affects consumers.

Economic forecasters say recession is over

A consortium of economists has declared that the recession has ended, but the economic recovery is likely to be more moderate compared to past recoveries. Its toll on the GDP is evident, they say, posting a 3.8 percent decline from its peak — a post-World War II record.

Key areas of concern identified by the National Association for Business Economics (NABE) in its 2009 Outlook report are the large increases in the federal debt and unemployment rates that are expected to remain high — 9.5 percent to 10 percent — through next year. Inflation is expected to remain contained throughout 2010. The report presents the consensus macroeconomic forecast of a panel of 44 professional forecasters, covering the outlook for 2009 and 2010.

“The good news is that this deep and long recession appears to be over, and with improving credit markets, the U.S. economy can return to solid growth next year without worry about rising inflation,” said NABE President-elect Lynn Reaser, chief economist at Point Loma Nazarene University, in a statement.

Financial markets will take some time to return to “normal.” About 21 percent of the panelists believe that financial markets will improve to the point that they no longer hinder economic growth in the second half of 2009. Another 21 percent expect this will occur in the first half of 2010. The majority predict a longer wait, with 29 percent expecting markets to return to normal in the second half of 2010 and the remaining 29 percent suggesting this will occur sometime between 2011 to 2013.

Other findings by NABE forecasters:

>> Growth will be moderate through the end of 2010. The GDP will increase at a 2.9-percent pace over the second half of this year and a 3-percent pace next year.

>> Consumer spending will be restrained, hurt by the effect of past wealth losses and modest employment gains, and it is expected to be a drag on the economy. Personal consumption expenditures will grow 1.6 percent next year. The saving rate is expected to exceed the 2 percent average of the past four years, but be well below the 9 percent average experienced during the 1970s and 1980s.

>> The housing recovery will gain momentum and report growth in 2010 but from a depressed level. House prices are slated for a modest gain of 2 percent in 2010.

>> Business investment will contribute to the economic rebound. The inventory liquidation of 2008-09 is expected to hit bottom during the second half of this year, with restocking slated for 2010.

>> Corporate profits will show improvements, with an 11 percent increase expected in 2010 — characteristic of the early stages of an economic recovery.

>> The dollar will soften further this year and remain weak into 2010. While the trade deficit has improved over the past several years, the weak dollar will not reduce the trade deficit further as the stronger U.S. economic rebound elevates import demand.

>> The federal funds rate is forecasted to remain in its current range of zero to 0.25 percent until late spring. After that, a gradual rise in the target rate to 1 percent is expected.

Chain store sales increase sparks optimism

U.S. chain store sales for September 2009 were up by 0.1 percent on a year-over-year same-store basis — a better-than-expected result, according to the International Council of Shopping Centers (ICSC). Seemingly a blip on the radar, the organization said it was the strongest reading since July 2008, which reported a 3.3 percent gain.

“Small as that gain was, it…marked a significant turning point for the industry, as well as the start of the retail recovery,” said Michael P. Niemira, chief economist and director of research for ICSC, in a statement. “To be sure, the retail recovery will be uneven and growth will be in spurts and fits, but it seems increasingly clear that it is recovery.”

Looking ahead to October 2009, ICSC expects comparable store sales will be flat with prior year’s October. So far, the ICSC-Goldman Sachs chain store sales index for the week ending Oct. 3 rose by 0.3 percent from the prior week and increased by 1.0 percent from the same week of the prior year to close the fiscal month of September.

Report identifies cost-savers for retail

So the economic future is still a mixed bag. What to do? Although revenues are stagnant, areas where retailers can still yield results are cost control and inventory management, according to a report from the Retail Industry Leaders Association (RILA) and the Auburn University Supply Chain Management Program.

Findings from the “The State of the Retail Supply Chain” report include: 90 percent of respondents have invested the same or more in supply chain process improvement; 70 percent in management development; 60 percent in technology; and 60 percent in workforce training. These gains emphasize the desire to improve supply chain efficiency, it noted.

To offset declined consumer spending, 80 percent of supply chain management executives report focusing their efforts on reducing inventory with close to 70 percent reporting that they are placing smaller initial orders.

The report noted the emergence of four major themes within retail supply chain management:

1. Leverage strong distribution networks that are capable of supporting high volumes.
2. Create flexible capacity to adjust supply chain infrastructure and support unanticipated fluctuation in demand.
3. Align inside and outside the organization to break down silos and manage processes more holistically.
4. Continually develop the internal talent pool to enhance the quality of the workforce.

–Wendy Geister

SNEWS is looking at different ways the economy is affecting our industries and your business in a periodic and ongoing series of stories. See our ongoing series at www.outsidebusinessjournal.com/financialnews. Stay tuned for more in-depth reporting on the current situation. Email us at snewsbox@snewsnet.com with any tips, comments or ideas on stories you’d like to see.