Jobs that Could Be in Trouble

The economy appears to be in trouble and everyone is wondering what industries will suffer the most from the up coming recession. When dollars get tight, people focus on cutting costs and buying necessities. So, anything that can be described as "waste" are most vulnerable. Currently, unemployment is now above 6 percent and some fear it could reach double digits.

The following are a few examples of industries that could be hardest hit:

• Supermarkets and fast food establishments could be the first to see a negative impact. The latter is for obvious reasons, because people will simply refrain from eating out as often. Supermarkets, on the other hand, will find themselves in a battle over pricing that we hadn't seen in years. The large volume leaders -- Walmart, Costco, and Sam's -- will be the likely winners of that battle. AOL Money & Finance points out that "Aside from Supervalu, which has already said it is struggling, Kroger and Safeway could be affected as well. These three largest chains have more than 750,000 workers. If same store sales drop sharply and a large number of outlets are closed watch for as many as 50,000 people being out of work.This does not take into account the scores of smaller chains and tens of thousands of individual food retailers around the country." On the fast food front, 10,000 jobs have already departed from Starbucks. That will only be the beginning.



• An industry that has been perceived as some what recession proof -- the Internet and E Commerce -- could be falling on hard times. The way these industries will be hit is if the damage is widespread throughout the business market place and it has a ripple effect on these areas. To some companies, E commerce and web businesses are an option, not a necessity. If that is the case, they too could suffer.



• E companies could find themselves in pain. My company's own web platform of over 90 websites has seen a slight decline in pay per click advertising revenue (fortunately we have seen a rise of other advertisiers). People are getting their ads for less because there are fewer competing to place them. What type of business are vulnerable? Google, Yahoo, eBay, and Amazon, just to name a few. Combined, these four employ over 75,000 employees. Yahoo seems the most vulnerable and could easily layoff 20 percent of its 15,000 employees.



• Software firms are also very vulnerable and I am sure that Bill Gates and his friends at Microsoft are among the most concerned. The largest of these companies employ over 600,000 combined. If these firms start laying off, it will have a trickle effect through out the entire economy since so many businesses are dependent on them.



• The hot industry in my neighborhood is energy and even it is vulnerable to cut backs. The price per barrel has dropped from a high of nearly $150 to around $70. Those prices are still high, historically, but the days of the fatted calf may be fading. Some are projecting a cut of as many as 5 percent of the labor force in these industries.



• Not surprisingly, media companies are taking a significant hit at this time. Everyone seems to be trying to lower expectations, including Viacom and CBS. The six largest media companies -- including Time Warner, Disney, and GE -- employ over 400,000 employees. If they start laying off the ripple effect could be huge.

What over shadows these dire concerns is the fact that thing Wall Street loves to see it that, when a business hits a hard time, the decision makers are tough and willing to make unpopular decisions. This is often best demonstrated in layoffs. In fact, the Stock Market has a history of rewarding companies with higher returns as they let employees go.

Kevin Price articles frequently appear at ChicagoSunTimes.com, Reuters.com, USAToday.com, and other national media.

Kevin Price is Host of the Price of Business (M-F at 11 AM on CNN 650) and Publisher of the Houston Business Review. Hear the show live and online at PriceofBusiness.com. Visit the archive of past shows here.

"Business Rivals" on Fox Business

I like business news in general -- which is why my kids think I am incredibly boring, but I tend to love the Fox Business Channel in particular. Fox Business is very personality driven and seems to be dedicated to coming up with ways of keeping the network relevant and interesting.

An example of this is the network's new "Business Rivals" segment on its Money for Breakfast program. The premise is simple, and is summed up by the network here:

"Starting on Feb. 25, each week Money for Breakfast presents a segment on the country's greatest business rivals and tells their stories. From Coke vs. Pepsi to Avis vs. Hertz to Microsoft vs. Apple to some even lesser known combatants – all of which you the viewer can help nominate. E-mail your comments and suggestions to rivalries@foxbusiness.com."

"We will look at how the rivalries came to pass and why they remain so heated -- i.e. the Coke - Pepsi fracas at Wal-Mart. We will then post each segment right here at FOXBusiness.com, and ask you to vote for America's Greatest Rivalry. "

I saw the first one today -- Wal-Mart vs. Target -- and they give a great overview of both companies, as well as their strengths and weaknesses. I assume they will be adding more information as the weeks go by, so we can make make a more reasonable vote. I vote for Wal-Mart, although I like both stores (if you want to know why, simply put "Wal-Mart" in this blog's search engine and you will see why I came to that conclusion).

They already have a list of other rivalries that you will want to watch in the weeks to come that you can see here. I will comment about many of those, I am sure. It is this different approach to business television that makes Fox Business so successful, in my opinion.

Kevin Price is Host of the Houston Business Show (M-F at 11 AM on CNN 650) and Publisher of the Houston Business Review. Hear the show live and online at HoustonBusinessShow.com. Visit the archive of past shows here.

Walmart's Continued War on Poverty

I'm an unashamed Walmart fan and have sung its praises in numerous blog posts over time. The company's latest ad campaign only continues to highlight the positive impact the company is having on the personal economies of people everywhere.

Why do I love Walmart?

* Because it is the country's largest employer with over 1.3 million receiving paychecks thanks to the company personified with a smiley face.

* It reduces poverty in developing countries without spending a single US tax dollar, thanks to job creation by the business super power around the globe. Walmart pays more than the industry norm in those countries and are developing the future consumers of US products. Americans like to complain about the jobs we export and goods we import. The reason the US imports more than we export is because we can afford to. The last time we had a long term trade surplus was during the Great Depression, which is not an attractive proposition. If we want foreign countries to buy our goods, they will have to be richer. Walmart is leading that effort.

* The result of making goods at a price that is a fraction of what they would cost in other parts of the world saves US consumers $2,500.00 a year on average (see video). This is an incredible savings for US consumers. Furthermore, Walmart keeps competitor prices in check as well.
Walmart remains my hero in the market place.

I get tired of the negative remarks against the retail giant and appreciate saving every dollar I can when I go shopping there.

India Needs to Remember How It Became a Player

India has become a major economic power because it has recognized how the world has become very "flat" indeed. Our ability to transport, inform, relocate, and communicate at very low (and in some cases, no) cost has made it possible for almost any country to become a major economic player. This has depended, of course, on their ability to create an economic environment conducive to attract business.

Recently, India has gotten higher marks in these areas. Lower taxes in many areas, very competitive labor in terms of quality and cost, and easier to understand business laws have made India a better place to do business and has led to an economic explosion. But everything isn't perfect in the economic world of India.

Michael Dell (above, telling it like it is) of Dell computer is taking the Indian government to task for the level of taxation on PCs. In a recent Forbes Magazine article it was pointed out that "Michael Dell told India on Tuesday that it needed to cut tariffs that hike the cost of computers by 20% to 25% if it wanted to attract more foreign investment, particularly from his company." The message that Dell is sending to India and any other country interested in investment is simple (this would include the US): "if you want more business, make it as affordable as possible to do business in your country."

If India won't lower the tariffs, some other country likely will, in the on going quest that companies like Dell pursue in order to make computers as affordable as possible. Many will argue that the government needs some revenue in order to conduct its activities, and there is no doubt that is true. But every government is going to have to learn the lesson that Walmart has learned in conducting its business: earn a little off of every activity and watch that activity explode (remember, pigs get fat and hogs get slaughtered). Walmart has among the lowest profit margins per item sold of any company in the world, but it is also among the most profitable. It is the amount of business that Walmart does that keeps it profitable. If governments took that approach in taxation, they would become business magnets and still generate huge amounts of revenue. Such an approach isn't only good for business, it is good for government, consumers, and everyone involved. India has become a major player by eliminating barriers, it clearly needs to remember that fact.

Saturday Morning Talking Heads

I typically watch Fox News every Saturday for their block of "Cost of Freedom" programs and I clearly see why it is the most watched two hours in business talk. Although I don't always agree with all the participants, they are very entertaining and many provide the best thought in business and the economy in the media.

A few observations from this week's programs:

* Social Security tax increases are still tax increases on job creation. We continually hear that Social Security is in a crisis and the answer to such always seems to be to raise taxes. If increases of taxes on income hurt the economy, so will Social Security taxes. In both cases it makes it difficult for the business owner to hire employees. Let's fix Social Security, but let's do it without hurting the economy.

* Let Wal Mart go into banking. The retail giant is interested in creating retail banking options at very low costs to consumers, and critics are concerned about their ability to do such. One commentator actually said "they don't know how to do it, so they won't do it well." Give me a break, as if Wal Mart won't hire the best people they can find to protect their assets and their customers. Wal Mart won't compete against the vast majority of banks, but make it possible to attract customers who have never had accounts, pumping huge amounts of money into the economy to be leveraged in a way it could never be done in a cookie jar, like many of these potential customers are doing now. If it is legal and Wal Mart wants to do it, I bet they will figure out how to do it well.

* Taxes on wealth creation must remain minimal in order to compete in a global economy. This may have been the smartest thing I have heard all day. How has Ireland, India, China, and other historically weak economies turned things around in recent years (two of these becoming economic powerhouses)? It isn't merely cheap labor, which India and China has had for years, but a tax system that puts the burden increasingly on consumption and a way from wealth creation (the source of jobs). If the US wants to compete on the international scene, they need to reduce or eliminate as many taxes on wealth creation as possible. Now more than ever they should consider eliminating income tax and replacing it with a consumption tax.

* How Tax Cuts Increases Revenue. Ben Stein is known by many as a TV and even movie personality (remember the history teacher in Ferris Bueller's Day Off?), but he is also quite brilliant when it comes to understanding the economy. One area he has come up short on, in my opinion, is understanding the power of the tax cuts in eliminating the deficit. On the news today he said that the increase in revenue the government has seen has been due to "business cycles" improving, which naturally generate higher revenues and not due to cutting taxes. Yet, I have also heard him state that the economy responded favorably to tax cuts and created a positive economic cycle. In other words, Stein has created a sequence of events in his mind but fails to see the bridge between the positive business cycle and higher revenues. That bridge was the tax cuts.

Some of these issues deserve, and will receive, more attention later, but I wanted to get them down as soon as possible. There is some excellent intellectual capital when it comes to business information available, one simply needs to know where to find it.

State of the Union: The Brief, But Powerful, Case for the Tax Cuts

The President's State of the Union speech, substantively, was fairly typical. "We need to balance the budget in the next five years" is something we have heard for six years and this time Bush can blame others if (when) it doesn't happen since he will be long out of office.

I will say that I am glad that he doesn't see tax increases as part of the solution to the deficit problem. One thing the President did articulate, but was largely ignored by the "talking head" news pundits, was that the deficit has been decreasing rapidly over the last few years. This without a tax increase? The economic growth driven by the tax cut has created more taxable activity, leading to a reduced deficit. Why would Democrats increase tax rates, which would likely reduce business tax activity, and thus reduce revenues? It is the politics of greed. They would rather crush economic growth, even if it hurts revenues and jobs, as long as it also hurts the very wealthy. It simply doesn't make sense. There is a quote, attributed to Abraham Lincoln, which was "you can't help America's poor by making America poor." This statement should be on the walls of both Houses of Congress.

The Democrats claim they have no problem with tax cuts, they just want them geared towards the middle or lower classes. These tax cuts are called "demand side" cuts, which leads to people buying a new stereo or TV. The President's tax cuts, on the other hand, are geared towards "supply" and lead to great economic formation, job creation, increased business activity, and (eventually) higher tax revenues, which we are seeing is true in the Bush cuts. I hope Americans are not fooled by the rhetoric. The Democrats tax approach will hurt more poor than help, destroy more jobs than create, and hurt revenue rather than generate.

If people are having a hard time understanding how cutting taxes increases revenue, just think of Wal Mart. Wal Mart has among the lowest price points for any retail company in the world, yet it is also the most profitable store of its kind. The lower cost per item, leads to more items sold, and then higher revenue. The same is the case for tax cuts. Such policies reduce the cost of business, leads to higher production, lowers prices, more items purchased, and higher revenue. Tax cuts work, let's keep them working for America.

Ford Employees Learning Economics 101

I know this is going to sound harsh, but the economic realities that Ford employees are discovering are the same lessons everyone must learn in order to thrive in our current economy. During an interview on ABC News Nightline an employee was asked about the cause of the company's decline. She replied it was because Americans selfishly bought foreign cars at the expense of their fellow Americans. The interviewer asked a question that was shockingly perceptive in our current political environment, (paraphrase) "could it be that Americans don't want to pay for the amazing salaries and benefits that you boasted about earlier? Wouldn't they rather pay for the lower cost of buying a car made by Toyota with lower wages and benefits?" (One thing all the Ford employees discussed was how good it was for them financially).

The look on her face was amazing. It was like she had a "V-8" moment, but the negative type, not the one you see in the commercials. She said "the benefits are amazing, but I hate to think that is why they did it." But that is exactly why we -- all of us -- "did it." The economy is a lot of things, but it isn't personal. The invisible hand that Adam Smith discussed in the 18th century is alive and well today. People actively make self interested decisions daily, even as we criticize the ability of other countries in competing against us. The invisible hand, a force we can't see but is all so powerful, creates supply and demand, and controls our economy unless harassed by government.

A great example of this is Wal-Mart. If everyone I talk to about this "job exporting," "people exploiting," "made in the USA destroying" company is telling the truth, this company should be on the brink of bankruptcy and not, arguably, the most economically powerful company in the world. But people, even as they drive to the "hated" store, will decry the injustice of goods made by cheap labor and walk out with not a single item made in the USA (with the possible exception of a tag that was made in a US territory). In essence, they cry all the way to the bank in savings.
Is this a bad thing? Certainly not, in my opinion. Our country has an unemployment of only 4.7 percent, that is virtually zero unemployment when you consider the large number estimated who are voluntarily unemployed (seasonally employed, criminals, etc., equals around 4 percent). Because we are free to get what we want, largely from where we want, we are able to get Ford Escorts for only $14,000 (since they make much of their cars in "cheap labor" countries rather than $60,000 a year (which is what they would likely cost if made bumper to bumper in the US). I'm able to eliminate poverty voluntarily and long term in countries like China and India through my purchases (like we did in Japan 40 years ago) without the United Nations taking my money through redistribution as that organization is attempting to do (leading to corruption and international welfare dependency). We are able to truly take advantage of the law of comparative advantage (things being made were they most make sense economically) and the whole world benefits from it.

I believe people should give up the notion of stopping the imports and embrace them. They are making us richer, not poorer (by the way, our longest period of trade surpluses was during the Great Depression; trade deficits mean we can afford more than other countries; not a bad thing). Instead of grumbling about our imports, we should appreciate the good things we are doing for the world economy and simple common sense with our purchases. We don't make these purchase because they are bad, but because they are good for everyone.

What about the nice Americans who lost their jobs at Ford, GM and other companies? The reality is, most of them will quickly find themselves back on their feet, with either new jobs or created businesses as they pursue becoming their own boss. This loss, though sad, will be temporary, but the American resolve the prosper is permanent.