The Dollars and Sense of Business
Economic Recovery in Peril?
By Dr. David Kohl
A survey of the economic landscape finds a surprise around every corner. Oil shocks, earthquakes, nuclear challenges, and sovereign debt issues are events threatening to derail the economic recovery. Let us examine some of the lead and lag indicators to ascertain the state of the domestic and global economies.
Oil prices are front and center as a result of tensions in the Middle East, and they are impacting the consumer and business bottom line. Possible social unrest in Saudi Arabia could have a major impact since Saudi Arabia supplies 20 percent of global oil and 10 percent of U.S. oil. If NYMEX oil prices should sustain for a period of time above $135 a barrel and gasoline prices continue at a $4.00 per gallon average nationwide, this could be the catalyst to propel the U.S. into another recession. A global recession would result if oil prices exceed $200 a barrel, which could occur if challenges arise in the Saudi peninsula.
Another headwind to the U.S. economy has been housing. Housing starts are well below the ideal metric of 1.1 million annually. Current data finds housing starts at 549,000, rising interest rates, and a backlog of homes in the southern and western regions of the United States. The housing industry, which represents one in seven jobs nationwide, is in the midst of a long-term recovery process.
Speaking of employment, the current unemployment rate is 8.8 percent and 15.7 percent if one considers U-1 to U-6 workers, those under-employed, dislocated, or who have given up seeking employment. This is a result of automation, or machines replacing man. The general uncertainty that small businesses have with the federal, state and local budgets, taxation policies, and regulations finds a reluctance to hire full-time workers. This is the most extended period of time on record that the unemployment rate has remained above 8 percent, even when one considers the Great Depression. Many small business owners indicate that high-quality workers are difficult to find, which is problematic because of the challenges in our educational system.
In recent months, both core and headline inflation has nearly doubled, impacting both consumer households and small business margins. Globally, inflation is quite high in emerging nations, i.e. the BRICS nations of Brazil, Russia, India, China, and now, South Africa. Last year these nations were approximately 20 percent of the world economy and 75 percent of the world growth. This directly links to Eastern Iowa as emerging nations are demanding commodities such as agricultural products, oil, steel, copper, and also farm machinery, which bodes well for the region’s economy.
Factors to watch for in the next few months include the aforementioned oil shocks and inflation. However, a business person needs to take note of sovereign debt issues both in the U.S. and in Europe. If budget reform in the U.S. is not resolved, federal debt downgrades could be possible, resulting in an interest rate increase. The Federal Reserve may institute more stimulus or interest rate increases later in the year if inflation or economic whitewater occurs. Globally, watch for a possible economic slowdown in China, induced by their Central Party to maintain social control.
How does a small business owner proactively manage in this environment?
- Utilize and monitor budgets and variance analysis that are projected versus actual to quickly grasp how economic conditions impact your business, and adjust accordingly.
- If you are profitable, have a profit plan. Allocate profits for growth; however, make sure you build adequate working capital as a financial shock absorber.
- Keep a little stretch in your management waistband and stay away from the undisciplined pursuit of more.
- Utilize the HUT principle — Hear, Understand, and Take action. Hear what is happening, understand how economic variables impact your business, and proactively take action.
Are Fuel Prices Nibbling Away at Your Bottom Line?
With fuel prices at a United States average of $3.987 per gallon (as of 5/12/11), businesses are looking for ways to reduce fuel expenses. Here are some helpful tips you can share with co-workers to reduce fuel consumption.
- Avoid High Speeds
As your speed increases, your aerodynamic drag increases in an exponential fashion. Driving 62 mph vs. 75 mph will reduce fuel consumption by about 15%.
- Do Not Accelerate or Brake Hard
By anticipating the traffic and applying slow steady acceleration and braking, fuel economy may increase by as much as 20%.
- Keep Tires Properly Inflated
Keep tire air pressure at the level recommended by your vehicle manufacturer. A single tire underinflated by 2 PSI increases fuel consumption by 1%.
- Use A/C Sparingly
When the air conditioner is on, it puts extra load on the engine, forcing more fuel to be used (by about 20%). The defrost position on most vehicles also uses the air conditioner.
- Keep Windows Closed
Open windows, especially at highway speeds, increase drag and result in decreased fuel economy of up to 10%.
- Service Vehicle Regularly
Proper maintenance avoids poor fuel economy related to dirty air filters, old spark plugs, or low fluid levels.
- Use Cruise Control
Maintaining a constant speed over long distances often saves gas.
- Avoid Heavy Loads
Remove the sand bags from your trunk in the spring and pack lightly for long trips.
- Avoid Long Idles
If you anticipate being stopped for more than 1 minute, shut off the car. Restarting the car uses less fuel than letting it idle for this time.
- Purchase a Fuel Efficient Vehicle
When buying a new vehicle examine the vehicle's rated fuel efficiency. Usually, choosing a small vehicle with a manual transmission will provide you with great fuel economy.
- Consolidate your trips
If you need to run errands, do them all at once instead of taking separate trips.
- Decrease your delivery area
Instead of offering free delivery within a fifty-mile radius, cut it back to fifteen miles.
Source: Modified from www.gasbuddy.com.
Ask the Expert
Our office is small and we rarely find time to go to the bank. Are there any other options for us to make deposits?
A. Hills Bank has many options for those of you who can’t seem to find the time to stop into a branch during banking hours. Our most popular solution is Hills Bank Direct Merchant, a remote capture service which allows you to scan the checks that you want to deposit from your location rather than driving to the bank to make a deposit.
We have many customers using this cost effective product which allows you to make deposits 24 hours a day, 7 days a week, 365 days a year! With gas prices continuing to climb it is also an excellent option for anyone not close to a Hills Bank location.
This product also provides a great solution if you are depositing many checks and need copies of those checks. Direct Merchant stores copies of your deposits for 45 days, but you can chose to save your deposits to your computer for longer than that. It also allows you to search deposits within the last 45 days, which can help with reconciliation for many businesses.
Another convenient solution is to use one of Hills Bank's Image ATMs. Simply insert checks or cash into the ATM. No envelopes or deposit slips are needed. Check images and a list of cash deposited appear directly on your receipt, so the deposit is immediately verified.
It's fast, reliable, and it displays images of your checks and lists the cash deposited to your account. Hills Bank Image ATMs can be found at the following locations:
- Hills Bank Cedar Rapids Blairs Ferry Road (drive-up)
- Hills Bank Cedar Rapids Downtown (walk-up)
- Hills Bank Iowa City Gilbert Street (walk-up and drive-up)
- Hills Bank Mount Vernon (drive-up)
Hills Bank will continue to replace ATMs with Image ATMs, so watch for more Image ATMs in the future.
If you would like more information on Hills Bank Direct Merchant, or other options to make deposits without going to the bank, please contact your local Hills Bank location or call us at 319-679-5500 for the Iowa City area, 319-654-8100 for the Cedar Rapids area, or toll free at 1-800-445-5725 and ask to speak to a Commercial Deposits Representative.
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