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Posts Tagged ‘economic recovery’

by Jill Johnson, Vice President, The Corundum Group

As 2012 rolls on, we continue to watch the economy with rapt attention. This election and the handling of the pending “fiscal cliff” will both be very telling as to where markets and the global economy will head in coming years.

Congress is operating in an almost continual state of gridlock, and one of the most severe impacts of the stalemate will be felt when and if a series of planned tax increases and spending cuts go into effect the first day of 2013.

Few would argue that the shock of going off this fiscal cliff, as it is being called, would be easy for our economy to absorb.  Among the changes are the expiration of the Bush-era tax cuts, the Obama payroll-tax holiday, emergency unemployment benefits, and the reversion of exemption levels for gift and estate taxes.  The New Year will also see the introduction of new taxes to support the recently passed healthcare law.  When you look at all these factors you can’t help but hope for teamwork in Washington. Election outcomes will impact this whole scene as well as the following chart shows.

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The uncertainty around the fiscal cliff causes us to remain wary and has likely contributed to the sluggish pace of recovery we experienced during the second quarter.  According to a survey of small business leaders conducted by the US Chamber of Commerce, 90% are concerned about the impact the fiscal cliff will have on their business growth. Nearly three-fourths of the respondents believe the recent healthcare law makes it harder to hire more employees. Global factors are also contributing to a fear of the unknown, fueled by economic challenges that continue to impair most of Europe and a slowdown in China.

Chart Source: RBC Global Asset Management, CBO, GS, RenMac, BoAML, DB, Eurasia Group, ISI. Note: Figures and scenarios are rough estimates. * Bush tax cuts for households with <$250K in income, Alternative Minimum Tax patch, tax extenders package. ** Original targeted debt ceiling cuts, old stimulus expiration, overseas military draw-down.

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Contributed by Steve Condon, President, The Corundum Group

It’s a tricky act, and sometimes perfecting it comes through difficult lessons.

Many firms have learned since 2008 how to operate at optimum efficiency without sacrificing quality. For certain, it was a painful transition for many. But many executives we talk to say it’s been a valuable exercise.

As we lumber toward a recovery that will surely come to pass at some point, the balancing act shifts a bit.

Consider the following scenario:

Company A hires Company B to provide a valuable consulting service. The two companies have worked together for almost 20 years with very few serious issues arising along the way. Company B is a reputable firm with a long history and a successful track record and has already undergone extensive restructuring efforts in order to keep business running smoothly and within budget restraints.

However, in recent months Company A has noticed several instances of less than quality work coming from B, including slow response time, missed deadlines, and even the occasional error or inaccuracy in a project. The staff at Company B seems to be scrambling and constantly apologizing. Company A’s level of dissatisfaction rises to the point where a meeting of the minds occurs to determine whether or not this relationship can continue.

Again, assuming B has exhausted their resources in terms of internal organization, process refinement, etc., it now has two choices:

  1. Hire
  2. Risk losing a client

While it may cause short-term strain on firms, we believe in the long-term this challenge will become more prevalent and will ultimately be a good thing. What this scenario represents is the scale tipping to the other end.

Lean staffs are no longer able to handle any increase in volume. It may not be a shocking or even noticeable rise based on the sluggish improvements we are seeing across the board, but over time we believe firms will be pushed to expand their workforce or risk losing business to a competitor.

As hiring picks up, voila, the recession will be over!

Well, perhaps it won’t be that easy—and all signs point to the fact that it won’t be a quick change. Yet this shift in balancing lean operations and quality service standards will ultimately create more jobs, which is a major key to sustained recovery.

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Contributed by Tim Coutts, President of CB&T Mortgage

While the dust settles from the political arm wrestling over the debt ceiling increase, the downgrade of US debt and the slow pace of economic recovery, a bright spot has emerged – mortgage rates.  Mortgage rates have fallen to historic lows and a refinance could represent a real opportunity to improve your personal financial situation.

The recent fall in the stock market has investors seeking the safety of  US government treasuries.  The increased demand has pushed yields dramatically lower on 10-year treasuries.  Since mortgage rates move in tandem with the yield on 10-year treasuries, we are seeing 30-year mortgage rates near 4% for conventional loans and below 4% for government (VA and FHA) loans.  A refinance of your existing mortgage could substantially reduce your monthly payment.

An attractive alternative for some homeowners is the 15-year mortgage.  The shorter maturity results in a lower rate than a 30-year loan.  Today’s 15-year rates are in the low 3% range.  A shorter maturity and lower interest rate means more of your monthly payment goes to reduce the loan balance.  If your plan is to have your home paid-off by the time you retire, this may be just the product for you.

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