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/

Treaties that Foster Economic Growth and American Values

Treaties determine what type of international commercial activity is likely within a country. The design of these treaties can determine the access to raw materials, investment opportunities, and export opportunities. Countries like the U.S. can develop stronger treaties that are more advantageous to an export market while ensuring that American values are important to partnering countries.

Developing countries are regularly looking to attract investment. Investment money is used to fuel their economies, fill government coffers, and create a connection to a larger world. Because of America’s strong economic position it has the capacity to create more advantageous treaties (Chikere Azubuike, 2013). The value of these investments puts the U.S. in a better bargaining position than the other country(s).

This position of power is not necessarily a bad thing. When done well it can help the U.S. fuel its economic hubs for greater development. Such hubs rely on natural resources and international supplies to fuel new product development and manufacturing. Ensuring that treaties consider the needs of these Hubs helps create jobs and encourage higher levels of local economic activity.

As with all negotiations the position of power often determines the terms and agreements of the two parties. Having an advantage in negotiation can help ensure that the right pressure points are being used that determine the outcome of negotiations. That power can help U.S. located firms obtain the resourced they need to grow and create jobs in the local economy.

Treaties are not all about economics and resource obtainment. Treaties can also promote human rights and values (Choudhury, 2009). In this case, solid treaties can also help ensure that American values are considered in business dealings. Such legal frameworks help orientate supplier nations to U.S. interests and perspectives which can further the spread of fundamental American values.

The development of strong American treaties that help turn bi-lateral trade agreements into a wider multi-lateral framework to ensure the anchoring of resources to economic hubs can help foster American interests. Each supplier nation is provided access to sell supplies to the U.S. while obtaining investments into the development of those supplies. The end result is a more efficient and well-developed economic hub that can obtain resources at a lower cost.

Chikere Azubuike, E. (2013). The place of treaties in international investment. Annual Survey of International & Comparative Law, 19.

Choudhury, B. (2009). Democratic implications arising from the intersection of investment arbitration and human rights. Alberta Law Review, 46 (4).

Does Improvements in Consumer Sentiment and GNP Indicate Future U.S. Growth?

The University of Michigan recently announced improvements in consumer sentiment from 80 in March to 84.6 in September (1).  Consumers who have been frugal with their pay checks over the past may now be willing to open their wallets. Increased consumer spending matched with improvements in Gross National Product (GNP) could be a good sign for the economy. 

Consumer sentiment and sales are two different things but certainly positive impressions today can lead to increased sales tomorrow.  According to Gelper, et. al. (2007) positive consumer sentiment is followed by increased purchases of products and services in the trailing 4-5 months. They argue that consumer sentiment maintains some predictive power over consumer spending. 

Another complementary announcement by the Commerce Department posted a rise in Gross Domestic Product (GDP) to 4.6% (2).  Positive GNP numbers were realized from personal consumption expenditures, exports, private inventory investment, state and local government spending, nonresidential fixed investments, and residential fixed investments.  

Consumer sentiment does have an impact on GDP. Negative consumer sentiment can lower GNP and positive consumer sentiment can raise GNP even though they are not associated with traditional market fundamentals (Matsusaka & Sbordone, 1995).  Contrary to popular opinion, consumer sentiment is strong enough to influence a 13 to 26 percent variance in GNP. 

Together these numbers support the idea that growth in consumer spending is more likely over the next few months. A short lag is not necessarily a bad thing if consumer spending also prompts American manufacturers to invest more in their operations to fulfill consumer needs and further strengthen GNP. It is possible that long-term exports could rise as U.S. based companies find parity with low cost foreign providers. 

Gelper, et. al. (2007). Consumer sentiment and consumer spending: decomposing the Granger causal relationship in the time domain. Applied Economics, 39 (1). 

Matsusaka, J. & Sbordone, A. (1995). Consumer confidence and economic fluctuations. Economic Inquiry, 33 (2).

GDP Improves 4% in Second Quarter

The winter chill has thawed and the economy has rebounded 4% in the second quarter surpassing the governments expectations by 3%. In a spat of heightened economic activity improvement marks a continued trend of increasing economic gain after one of the nation’s worst recessions. The numbers provide some relief for those worried about the previous quarter’s retraction.

“Today’s advance estimate of real GDP is a positive signal that our economy is continuing its steady rebound,” stated U.S. Secretary of Commerce Penny Pritzker. She also highlighted that it is necessary to continue work to ensure the rebound is long lasting. 

The plan is to encourage “more companies to export, increase foreign direct investment in the United States, strengthen regional manufacturing and economic development hubs, ensure workers have the skills to find jobs businesses need to fill, and unleash more of our data, all of which helps businesses grow and create American jobs.”

The numbers are complemented by an increase in retail and food services sales, durable goods orders, wholesale trade, new residential sales, personal income, employment and improvement in exports. Housing construction was down substantially but didn’t seem to be creating significant drag. 

Despite the downturn in new construction the overall factors have been positive. Improved international outlook, higher consumer spending, and slack in the system seems to be tightening. Hopefully it will maintain its momentum into the next few quarters.

The Federal Reserve is also cutting its bond from $25 billion from $35 billion. The program was designed to encourage businesses to spend instead of save. As the economy moves to a cruise control stage there is less need for government interference. 

We have a lot to feel thankful for as we move out of the recession period. Increased economic activity will require additional adaptation and investment by companies. With any luck the parity costs of manufacturing with nations like China may provide additional help with investment stimulus and job creation.