Archives for March2010

U.S. Economy: Consumer Spending Increases as Incomes Stagnate

Yet another interesting article regarding the economy and its ability to bounce back. As I have blogged before, depending on who you talk to, the U.S. is either going broke, or we are slowly recovering. Naturally the U.S. economy will never be what it was where everyone had three cars, two houses, and of course…credit/debt. We should all recognize that everything most of us had about fifteen months ago was simply a house of cards built on credit and a mountain of debt. Nowadays, the economy is slowly growing to where it should have been minus greed. But of course, everyone wants everything now, now now! Sorry, it’s not going to happen but there is a light at the end of the tunnel for those who truly understand what has occured in the economy and what will continue to occur in the economy…slow, slow, growth. But according to this article, people are spending and they are spending wisely.

Read this article.

March 29, 2010, 11:27 AM EDT
By Timothy R. Homan

March 29 (Bloomberg) — Consumer spending in the U.S. rose in February for a fifth consecutive month, a rebound that will require gains in employment to be sustained.

Best Buy Co. and Nike Inc., which have reported higher- than-anticipated profits, are among companies that may keep benefitting as the emerging recovery gives Americans the confidence to buy. The pickup in purchases has caused the household savings rate to drop to the lowest level in more than a year, underscoring the need for more jobs to ensure the recovery is maintained.

“Considering the circumstances, this is a fine performance with the job market still not strong,” said Michael Moran, chief economist at Daiwa Securities America Inc. in New York. “As the labor market comes back, we should see continued support from consumers.”

Stocks and commodities rose on signs the world’s largest economy will keep growing and as concern waned over the Greek government’s deficit. The Standard & Poor’s 500 Index advanced 0.6 percent to 1,173.35 at 11:22 a.m. in New York.

Read more at BusinessWeek.com

Why a $14/hour employee costs $20

This is a great reminder to business owners as well as employees that the costs associated with owning a business, or being employed is much more than we think. This article talks about the extra amount employers pay to keep a human employed. I call it labor burden, which is all the “other stuff” your boss has to cough up in order to keep you employed. So, the next time you (employee) feel overworked, stressed because of work, or you feel underpaid…just quit. It’s probably better for all because at the end of the day, employees are the most expensive variable expense a business has. Rather than being a pain in the ass about working conditions, try helping out more by figuring out how to cut costs, not human costs, just operation costs, how to do things better, more efficiently. Remember, at least you still have a job to complain about.

And for business owners, if labor burden gets to you, don’t just fire people, reorganize the business to make it more efficient and effective. It can be done, I do it all the time. Recognize those human costs and get your monies worth from the humans by maintaining a structured and well organized business. Be a leader.

Read this article, it’s interesting

By Catherine Clifford, staff reporterMarch 28, 2010: 9:25 AM ET

NEW YORK (CNNMoney.com) — You probably cost your boss a lot more than you think you do.

For Jim Garland, who owns a corporate aircraft cleaning and support services company, a $14 per hour worker has a true cost of $19.63 per hour, or about 40% more than base pay. This so-called “loaded rate” includes fixed expenses — federal and state taxes, health insurance, workman’s compensation, uniforms, and paid time off — along with soft costs like the time spent training a new hire.

Read More at CNNMoney.com

Where to get start-up cash now

Bank credit is scarce and investors are skittish, but that didn’t stop these 6 startups. They found creative ways to raise cash during the downturn.

This is an interesting article being that there are so many negative stories about this economy but there also are people out there starting businesses. Whether it’s in their garage or door to door, people are actually starting businesses in this economic downturn. Read these six start-up stories, they are good and positive while everyone is busy being negative.

Read more at CNNMoney.com

Family Ties Can Put Companies in a Bind

This is classic. As much as the U.S. economy revolves around small businesses, most small businesses are owned and operated by families. Whatever the combonation, father & son, husband & wife, brother & sister, brother & brother, cousins etc, etc, it never surprises me to hear of a business going under because of a sibling dispute. It happens often and it usually stems from different opnions about how the business should be managed or where the business should go into the future.

Ironically, all large corporations started as small, family owned businesses. How did they do it while still managing the issues family plays in business? It is possible to manage a successful business regardless of who in the family runs it. I have seen the worst and I have seen the best examples of family businesses. Either way, this an intersting article.

By EMILY MALTBY WSJ

Partnerships Between Siblings, Parents, Cousins Become More Strained Amid Tight Finances, Issues of Future Strategy

For public claims adjuster Franklin Horowitz, merging his business with his cousin’s seemed like a great idea. Both he and his cousin were in the same line of work and Mr. Horowitz believed their different work styles—he was always pushing deals while his cousin was more conservative—would be complementary.

The partners ran MLA Claims LLC in Lafayette Hill, Pa., together for three years, helping policyholders receive compensation from their insurance companies. As the recession set in, the firm’s clients held back on using MLA’s services for smaller claims and the insurance companies were more prone to delay claims.

Mr. Horowitz says fear of how the company would be financially impacted began to hurt the partnership. My cousin “would be conservative no matter what, but with the economy, he was even more so.”

Mr. Horowitz’s cousin, Robert Landow, declined to be interviewed in detail for this article. His attorney also declined to comment.

In family businesses, strain between relatives can be more severe when finances are tight. “I tend to joke that when times are good and there is tension between family members, a new car will solve the problem,” says Ted Clark, executive director of the Northeastern University Center for Family Business in Boston. “But in tough times, they have to actually address the problem.”

More than any other issue, discussions about the company’s future strategy propagate tension, as cited by 37% of respondents to a 2007 PricewaterhouseCoopers Family Business Survey.

According to Mr. Horowitz, the disintegration of the cousins’ business relationship picked up momentum last April, when the company pursued a large case. Mr. Horowitz believed he could get four times the amount the insurance companies were offering, and against Mr. Landow’s judgment, spent a lot of time and money pushing for a higher settlement. Mr. Horowitz declined to provide the names of the insurance companies.

Read More at WSJonliine

Health care reform: How it might work for real people

So, it’s done. The health care bill was signed by President Obama this morning. Now what? There are so many positves and so many negatives to this bill and now that it is finally signed, what is really going to happen? Who do we listen to relative to how it’s going? What do we complain about now or what do we cheer about now?

It seems as if the health care bill was the topic of many conversations for the last year or so, more so lately. But now what do those who were damning this bill complain about now? What do those who were praising this bill cheer about now? How about…it’s over! Get over it and move on.

This CNN article is pretty interesting. I think it clearly identifies what will happen now. Good or bad the bill is signed just like some of us didn’t and don’t agree with the Iraq war and some of us do agree with the Iraq war…it’s happening, move on.

How about now that the bill is signed we all get back to building our lives and our businesses as best we can. A facebook friend of mine put it in perspective this morning…at least we are still alive and we got to wake up this morning.

Read this article, it’s a good one.

By Elizabeth Landau and Madison Park, CNN
March 23, 2010

About 32 million Americans who don’t have health insurance will get access to coverage when the $940 billion health care plan takes effect.

What does that mean for Americans who don’t have insurance, or who are in danger of losing it? A few shared their thoughts with CNN about health care reform and how it affects them. Then CNN sought expert opinions on how reform might really work in their lives.

Child with pre-existing condition

The situation: Erica Mohamed, 31, of Houston, Texas, is separated, and has a 6-year-old son, Jeremiah, with a rare congenital heart disease called Tetralogy of Fallot. He has had three open-heart surgeries already, and will need to have another procedure to remove a stent in early adolescence. Mohamed’s job, through which she gets insurance, is not secure. Mohamed’s mother, Vera Richardson, wrote to CNN’s iReport about the situation.

Mohamed says: She is glad that she will be able to keep her insurance for her son even if she loses her job. “Did I get everything that I thought that I wanted in this bill? No, not at all because I still think we need at least a public option. But at least it’s something, at least it’s moving forward, and it’s going to get more coverage to more people,” she said.

Expert says: Effective this year, in six months, children with pre-existing conditions cannot be denied health care, said Karen Davis, president of the Commonwealth Fund, an independent organization that researches health policy issues. By 2014, children will be covered up to 133 percent of the the federal poverty level. For a family of two, the poverty level is $14,570 in the 48 contiguous states and the District of Columbia.

Read more at CNNMoney.com

Health overhaul promises pain, gain for businesses

Health bill will squeeze industry profits but holds promise for long-term gains

Matthew Perrone, AP Business Writer

WASHINGTON (AP) — When historians write the book on how President Barack Obama’s health care overhaul became law, they’ll need to leave space for some unlikely advocates: lobbyists for the drug, insurance and hospital industries.

Last summer, executives from those groups visited the White House and pledged to do their part to help pay for the health bill. By signing on to the effort early and agreeing to absorb some of the costs, they were able to help shape its final form.

Only time will tell how smart that trade-off was for the industries, but a quick look at the bill passed by the House late Sunday shows it was far from their worst-case scenario:

– A government-run health care plan that would compete against private insurers? Never made it out of the Senate.

– Price controls on Medicare’s prescription-drug program that would squeeze drug industry profits? Quietly dropped from consideration last fall.

– Cuts in payments to hospitals serving Medicare patients? Trimmed to modest levels and delayed until 2014.

To be sure, the shift in the nation’s health care landscape will challenge companies. But most experts believe the short-term profit squeeze ultimately will be outweighed by the business of millions of new patients entering the system.

Health care stocks have risen over the past year with the broader market, with insurers seeing the biggest gains. The Standard & Poor’s health care index has gained 30 percent since the market bottom last March and is just 12 percent from its 2007 peak.

Here is a breakdown of how various sectors fared in the overhaul effort.

HEALTH INSURERS:

No sector had more to gain or lose than the health insurance industry, which pulled in more than $275 billion last year.

America’s Health Insurance Plans, the group’s Washington lobby, led the effort to kill President Bill Clinton’s health care plan in the 1990s with its famous “Harry and Louise” TV ads showing a couple fretting over a new “billion-dollar bureaucracy.”

This time around, the industry’s early support for the overhaul was seen as proof that Democrats had the wind at their backs.

The insurance industry changed course last fall, running ads against the overhaul, after it decided the Democrats’ plan wouldn’t bring enough healthy new patients into the system to balance increased medical costs. But analysts say insurers’ rhetoric doesn’t match their actions.

“It doesn’t look like they’re in the fight of their lives,” said Les Funtleyder, an analyst with financial firm Miller Tabak. “If you remember the Clinton days, there was a ‘Harry and Louise’ ad on every couple of minutes. We’re not seeing that anymore.”

And stocks of insurance companies are way up over the past year — even beyond the gains in the broader market.

The bill headed for Obama’s desk offers insurers both opportunities and challenges:

– Insurers will gain customers because the bill requires most Americans to carry health insurance. Roughly 32 million more Americans will be covered under Obama’s plan, either through buying private policies or an expansion of Medicaid. The poorest will get subsidies, and Americans who don’t comply with the insurance requirement will be fined. But with annual penalties totaling just $695 per person, insurers argue that many healthy people will pay the fine rather than buy coverage. Insurers need healthy people in their plans to balance out patients who require more care.

– The bill bans insurers from denying coverage to people with pre-existing conditions such as diabetes or cancer, limits how much premiums can go up based on age and allows people to stay on their parents’ health plan up to age 26.

– Payment rates will be immediately frozen for insurers who offer Medicare Advantage, the privately run arm of Medicare, meaning they will bring in $200 billion less over 10 years.

– Starting in 2014, the bill imposes fees on insurers totaling $74 billion over 10 years. Most experts say companies will raise prices to accommodate increased taxes, fees and regulations once the new system is in place. For all the talk of lowering Americans’ health care costs, experts say the bill doesn’t regulate premium increases or reform a medical system that focuses more on expensive diagnostics and treatment rather than prevention.

“You’ll continue to see premium rates go up because there are so many aspects of the system that are still increasing prices,” said Dan Mendelson, president of consultant Avalere Health.

Read the entire article at YahooFinance.com

What health care reform means for your business

There has been tremendous debate about this health care issue that I actually am confused. I’m not really sure I understand the good and the bad about this bill so I will remain tight lipped until I understand more. I do find it interesting that there is such passion for bill negative and postive but again, I simply do not understand it well enough. But, this article does shed some light on the issue that I hope everyone has a chance to read it and understand as best they can. I personally would not to debate this issues as there are other things I need to focus on but I do think this article is a good read.

CNNMoney.com Small Business By Neil deMause, contributing writerMarch 22, 2010

NEW YORK (CNNMoney.com) — The sweeping health-care bill passed by the House of Representatives Sunday, and now headed for President Obama’s desk, promises a sea change in the way that small business owners purchase and provide health insurance for themselves and their employees.

But many of the provisions won’t kick in until 2014 — and the final rules could still be changed by amendments that will now be considered by the Senate.
Thanks to the political maneuvering that followed the Democrats’ loss of a filibuster-proof majority in the Senate, the House passed two separate health care bills. The first was an exact duplicate of the one passed by the Senate in December, enabling the president to sign it into law as soon as this week.

The second, a package of diverse amendments addressing elements of the Senate bill that the House wanted changed, will now be voted on in the Senate under “reconciliation” rules that require only a simple majority.

For small businesses, the effects of the now-passed health reform law include:

* By no later than 2014, states will have to set up Small Business Health Options Programs, or “SHOP Exchanges,” where small businesses will be able to pool together to buy insurance. (“Small businesses” are defined as those with no more than 100 employees, though states have the option of limiting pools to companies with 50 or fewer employees through 2016; companies that grow beyond the size limit will also be grandfathered in.)

The Congressional Budget Office has estimated that the exchanges would ease small business insurance costs, albeit only marginally: premiums in the small-group market are forecast to fall between 1% and 4% under the exchanges, while the amount of coverage would rise by up to 3%.

Read more at CNNMoney.com

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Bank Failures Threaten Small-Business Lending

This is a telling article about how tough it is for small and mid-sized businesses out there, but it goes to what I have been presenting for about two years now. It is possible, because I do it all the time with clients, to manage a business without the need for loans or accessing credit cards. I teach clients and have made presentations to many business groups on how this is possible. My clients are much more successful today using my processes.

By this article, lending is becoming increasingly difficult and it is not going to get better. Sure, the economy is changing, slowly, but it is not going to change overnight where managing and actually finding working capital in our businesses now has become very important. Buisness owners cannot go to the bank as some think they can.

If you own or operate a small to mid-sized business ($5mm-$300mm) you simply will not be able to access working capital via a bank loan.

Sure, some of you think you’re bank will give you $$ based on inventory or assets and they will but note that the bank will now own your business via that agreement. Trust me, I see it all the time. Banks want tow things from us; 1) interest payments 2) capital assets to sell at a later date.

It’s true.

By DARRELL A. HUGHES, Wall Street Journal
The U.S. Treasury Department is concerned the steady pace of bank failures could keep many small businesses from gaining access to new credit as the economy rebounds and companies seek to expand.

Assistant Treasury Secretary Alan Krueger said small and medium bank failures are disrupting long-standing business relationships that drive lending to small businesses.

“We’ve been concerned that small businesses, which are particularly dependent on bank financing because they typically don’t access corporate bond markets, will face and have been facing difficulty getting credit,” Treasury’s chief economist said.

Since the beginning of 2008, 192 banks have failed, with 27 coming so far this year. Total lending by U.S. banks fell 7.4%, the steepest drop since 1942.

According to Raj Date, executive director of Cambridge Winter Center for Financial Institutions Policy, there will be a lending shortfall for small businesses of as much as $250 billion to $500 billion as the economy recovers.

Read more at WallStreetJournal.com

Slowly, Americans are regaining their lost wealth

This is an interesting article related to this economic bounce back. I have always said that good or bad news about the economy depends on who you talk to. Some people are so angry and yet, some are tickled pink for their own reasons.

This article is stating the fact the some of us, and I stress some of us learned how to manage our money better than others during these last fifteen months such that now, some of us are reaping the benefits. Not me of course, I’m not that savvy, or am I? Either way, there is a light at the end of the tunnel. Things are getting better but I must caution that by saying that this recovery will take a very very very long time.

In the past I’ve blogged about how we need to get used to the way things are just as we did in the ’70s. In the seventies, most of us had a credit card or two and little to zero debt. Why can’t we live like that again? I know why. Because we are used to living with ten credit cards and a mountain of debt. Ever notice the way you drive to work and the way you drive home after work? Stressed, that’s how you do it.

This economy is changing for the better but it will be years before things get back to normal. Besides, what is normal?

Read this article:

Jeannine Aversa and Dave Carpenter, AP Business Writers, On Thursday March 11, 2010, 3:27 pm
WASHINGTON (AP) — Americans are recovering their shrunken wealth — gradually.

Household net worth rose last quarter, mainly because the healing economy boosted stock portfolios. But the gain was slight. And it was less than in the previous two quarters.

The Federal Reserve said Thursday that net worth rose 1.3 percent in the fourth quarter to $54.2 trillion. It marked the third straight quarter of gains. But economists say consumers would need a stronger and more prolonged increase in their wealth to persuade them to ratchet up spending.

Net worth had risen by a more robust 4.5 percent in the second quarter of 2009 and an even faster 5.5 percent in the third quarter. Net worth is the value of assets such as homes, checking accounts and investments minus debts like mortgages and credit cards.

Even with the gain, Americans’ net worth would have to rise an additional 21 percent just to get back to its pre-recession peak of $65.9 trillion. That illustrates Americans’ vast loss of wealth from the worst downturn since the 1930s.

Growth in stock portfolios delivered the biggest lift to net worth in the October-to-December period. The value of stocks rose by nearly 4 percent to $7.7 trillion. Higher home prices helped a bit. The value of real-estate holdings edged up 0.2 percent.

Read more at YahooFinance.com