Market Commentary for the week of November 2, 2009

I want to stray from my usually empirical analysis to offer 3 anecdotes, from which you will be asked to draw your own conclusions. These stories might shed some light on how Wall Street and Main Street differ in defining terms. Take for example “profitability,” and “productivity,” sometimes used interchangeably, but most always used to explain why layoffs might enhance the bottom line:

Scenario 1:
A young woman stops in at her local hairdresser for her regularly scheduled monthly appointment at 2pm. The receptionist tells her that she’ll have to wait, they’re running a little late today. An hour later, at 3pm, she finally gets in to see her hairdresser.

“What’s the delay today?” she inquires.

“Oh, management laid off a technician two weeks ago, so our people are “doubling-up” on clients. Sorry if it’s any inconvenience.”

Scenario 2:
A man drives his sedan to the service department of his local auto dealer at 8am Monday morning. He explains to the attendant that he is there for his semi-annual tune-up and repair. Being that he has to take the bus into work, and the bus back later that afternoon, it is imperative that the car be ready by the end of the day. He returns to the dealership at 5:30pm, after having left his place of employment one-half hour early.

“I’m sorry, sir, your car’s not ready yet.”

“What?” he exclaims. “Why not?”

“Well sir, we’re short two mechanics. We had to let them go in August because of poor volume. We got backed up and didn’t start on your repairs until just this afternoon. We’ll try to finish your vehicle as soon as possible.”

Scenario 3:
“Ladies and gentlemen, ABC Airlines is sorry to inform you that the 12:50 flight to Dallas has been delayed up to two hours because of a backup in traffic at another hub.”

Just two weeks earlier ABC Airlines had reported that they were firing 20 pilots and 100 air service personnel due to budget-cutting and cost savings measures.

Do any of these scenarios look/sound familiar to you? And if so, what significance do these everyday anecdotes play in our lives, or of a broader analysis of economic patterns?

Analysis.
No one is foolish enough to suggest that companies must absorb unnecessary expenses, or that they shouldn’t adjust budget items in order to manage profits appropriately. But is should not go unnoticed that these decisions have a ripple effect which resonates far-beyond the intended consequences of managing profits and personnel. Today, we hear so much talk about employment data that I think we need to focus on “preemptive decision-making” versus “strategic growth initiatives.”

Time management is a consequence of “stacking” tasks upon the workplace, and can have a deleterious effect upon productivity, morale, and efficiency.

Economists are concerned about these secondary consequences of productivity “enhancements,” and worry about a “w-shaped recovery” or a second downleg in our nascent economic recovery. Indeed, as it starts to look better, the economy might become overburdened by demand. It’s a nice problem to have, and much further down the road than warrants our concern today. But the ripple effect of yesterday’s decisions do play a part in whether we have the labor force sufficient to meet any actualized pent-up demand.

Additionally, it would be wise to look beyond any gyrations in short-term purchasing patterns and look, instead, at systemic growth industries and patterns that represent capital gains potential for the next five years and beyond. No one’s interests are served by short term gain at the expense of long term strategic success.

While some statistics seem to show year-over-year growth in the economy, consumer spending is weak because incomes remained static, wage rates decline, and unemployment remains stubbornly high. If spending vacillates into the holiday season, savings levels might continue to diminish, while debt could expand. That could lead us to the “second downleg.”