2011
Aug 
17

Client and Market Update for 8-17

Filed under: SALES COACHING — Kerry Johnson @ 6:37 pm  


This Week’s Peak Performance Coaching Report
and Current Economic Outlook

As you communicate with your clients and help them make sense of the current economic conditions, here are some talking points that will make your conversations more relevant and informed. Here are some concepts you should keep in mind this week as you make your 3 month client calls:

A Softening Economy
Recent economic data has shown the chance of recession is continuing to grow. This possibility, according to some economists has been growing for at least two months. The technical definition for a recession is two consecutive quarters of negative GDP growth. But the recent unprecedented move by the Federal Reserve Board of holding interest rates at near zero for two year is surprising. It was ample evidence that the Fed expects a slow or even recessive economy in the short-term.

The Fed is out of ammunition with TARP, Quantitative Easing 1, and Quantitative Easing 2 all resulting in higher inflation, higher commodity prices, and a weak US dollar. The closely watched ISM manufacturing index have also been disappointing. The most recent ISM index fell to 50.9, the lowest since July 2009. While any number above 50 indicates economic expansion, the trend is toward recession.

Many economists believe the US is at an inflection point. Since consumer spending is 70% of US GDP, recent consumer confidence index decreases in the last two months are not good signs. This declines in these indexes could result in a self fulfilling prophecy; where consumers are so nervous about a future recession, they stop spending.

Jobs
The current unemployment rate remains at 9.1% down only .1% from June. The ADP private payroll report recently showed a slim gain of 114,000 jobs. Nothing seems to add jobs currently. The Fed is unable to sufficiently stimulate the market, although they have certainly tried. The Treasury has been unable to add confidence to small business employers who hire 65% of all American workers. The S&P downgrade from AAA to AA+ has also given much reason for hope. It seems only a change in the US tax code could be the answer. $3 trillion of corporate profit is now currently outside the US. America has one of the highest corporate tax rates in the world. To repatriate that money back into the US would mean business would have resources to hire as well as to build further corporate infrastructure and profit. Many economists believe that lowering the corporate tax rate to 25% alone would be enough incentive to bring offshore corporate money back. That would mean hundreds of $Billions in recovered taxes. Many believe not updating the tax code is unconscionable with so many out of work.

The Euro Zone Crisis of Confidence
The European Central Bank finally stepped in recently to prop up the shaky economies of Italy and Spain. They did this by purchasing Italian and Spanish government debt. While this seemed to stem short-term concerns, it put added pressure on lending source banks in France and Germany. The European Financial Stability Facility (EFSF) is the backbone of the current European sovereign debt bailout. The problem is structural. No matter what the EFSF does, Italy and Spain are too big to bail out. There is not enough money available in any European institution to save these countries from defaulting. This is a major factor why the US stock market has seen such extreme volatility. Eventually we will see riots and social unrest in European cities recently seen in Greece. The ECB and the ESFS are currently struggling to convince Spain and Italy to create new austerity programs now instead of waiting for default later.

Kerry

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