US Consumer Spending Returning to Normal

So says the McKinsey Quarterly. Not that we're seeing a return to the "borrow and spend" madness of recent years. On the contrary, research shows that consumers are turning away from levels of indebtedness that were common in the in the last two decades and returning to typical post-war spending patterns:

Spending, saving, and debt averages are not at abnormal levels today but rather returning to long-term trends. It was the behavior of US consumers during the past two decades, our research shows, that was the aberration. The return to traditional spending patterns will cause companies to adjust to a fundamentally altered playing field...

This finding suggests that companies must develop a deep understanding of how such profound behavioral change will affect strategies fundamental to value creation: acquiring and keeping new clients, intensifying relationships with them, and improving service to consumers, for example.

It is easy to see how Web 2.0 consumer applications will become even more important under this scenario. But to make the picture even more complicated: some have asserted that we've seen consumer debt explode because family earning power has stagnated over the last 30 years. If that's the case, without an increase in take-home pay, those families will never return to pre-bubble levels of spending. In this case, is a robust recovery at all possible?

Hmmm. . .

The full story is here (registration required).

Technorati Tags: innovation

Three Mistakes the Fed Made. . .

According to economist Brad DeLong, there is fairly strong consensus that the Fed made three big mistakes coping with the financial crisis:

• nationalizing AIG, allowing financiers to act as if that company could still pay its bills, thus creating the impression that those financiers had done the right thing all along.
• letting Lehman Brothers freefall into bankruptcy to "teach the Street a lesson"
• failing to regulate the "shadow" banking system out of a Greenspan-like faith in the beneficence of markets

There is another action whose merit is still being debated: Was it sensible for Mr. Greenspan to keep interest rates low during the run up of the housing bubble? DeLong's take: the old man might have been right. For an interesting read, click here.

Technorati Tags: economy

Art and Business: A Good Match?

Via Creative Class:

In a new working paper for the Harvard Business School, Robert D. Austin and Lee Devinand examined the potential conflicts between business and art in creative enterprise. They found there was no necessary conflict. Key finding: "We conclude that despite an inclination to take offense that often attends the close juxtaposition of art and commerce … the interests of art, artists, and business can be best served if more commerce enters into the world of art, not less."

I remain a skeptic. The full report is here.

Germany Looks for a Way Back

The Wall Street Journal reports that Germany is looking to revive its economy through export-led growth. The accompanying chart gives you an idea why: traditionally, the German economy has been dominated by export activity, which accounted for almost half of the country's GDP in 2008. But, as the article points out, it will be a struggle:

It's doubtful whether German exports will grow as fast after this crisis as they did in the bubble years before it, because the U.S. and parts of Europe will save more and consume less for a while. And employment in Germany's main export sectors -- machinery, cars and chemicals -- is in long-term decline as companies cut costs and steadily shift production to cheaper countries to stay competitive.

But the alternatives are not pretty, either. As the article explains:

To some extent, Germany is trying to promote new sectors. Subsidies have turned the country into a leader in solar energy.

But Germany is second last in the number of business start-ups among 18 advanced economies surveyed by the Global Entrepreneurship Monitor, an international research project. Only Belgians found fewer new businesses than Germans, the survey finds.

A recent study by consultants McKinsey & Co. says Germany could double its average economic growth to 3% a year if it got serious about new industries, from research-led sectors to services for the growing number of elderly consumers. Without such an effort, German living standards will decline relative to other advanced economies, the report warns.

But genuinely diversifying Germany's economy would require an overhaul of the country's universities, banking and capital markets, bureaucracy, taxes and welfare state, labor market and immigration laws, say economists.

And you think we've got issues.

Technorati Tags: economy, innovation

Local food, local jobs?

Workforce Developments has a feature on the Windy City Harvest program which trains Chicago residents in the basics of urban gardening and business operations to foster new supplies of local produce and a new crop of inner city entrepreneurs. The video below provides an overview of the program.



Technorati Tags: innovation, talent

Two Cautionary Tales about How to Respond to the Economy

Unfortunately, they lead in opposite directions. First, Presidential Economic Adviser Christine Romer writes in the Economist:

The urge to declare victory and get back to normal policy after an economic crisis is strong. That urge needs to be resisted until the economy is again approaching full employment. Financial crises, in particular, tend to leave scars that make financial institutions, households and firms behave differently. If the government withdraws support too early, a return to economic decline or even panic could follow. In this regard, not only should we not prematurely stop Recovery Act spending, we need to plan carefully for its expiration.

In the Financial Times, one-time genius Alan Greenspan has a different perspective:

The US is faced with the choice of either paring back its budget deficits and monetary base as soon as the current risks of deflation dissipate, or setting the stage for a potential upsurge in inflation. Even absent the inflation threat, there is another potential danger inherent in current US fiscal policy: a major increase in the funding of the US economy through public sector debt. Such a course for fiscal policy is a recipe for the political allocation of capital and an undermining of the process of “creative destruction” – the private sector market competition that is essential to rising standards of living.

What to do? Listen to Romer, who has no track record on these matters, or go with Mr. Greenspan and his less than stellar performance? Beats me.

Technorati Tags: economy

China continues to move into the Aviation Industry

Deutsche Welle reports that European aviation firm Airbus has received its first plane manufactured in China. Airbus has expanded into China to supply that country's growing aviation market.

The Tianjin plant, which opened in September 2008, is modelled after a state-of-the-art Airbus factory in Hamburg, Germany. The plant is a joint venture between Airbus and a Chinese aviation consortium and costs some 10 billion yuan ($1.47 billion).

China has been an Airbus customer since 1985. Since then, Chinese orders have exceeded 700 aircraft and will be supplemented by a further 10 models, scheduled to leave the Tianjin plant by the end of the year. Come 2011, the factory is expected to be turning out 4 aircraft per month.

The Chinese aircraft market is the second largest in the world and already accounts for 15 percent of the European manufacturer's total sales. Chinese carriers are expected to purchase as many as 3,400 new aircraft in the coming two decades, and Airbus hopes to cash in on this by capturing half the Chinese market by 2012.

The article goes on to point out that Airbus should not be too optimistic about its position in the Chinese market. It is clear that Chinese firms are accepting contracts and investment from Airbus (and Boeing) as means to create the capacity to become a major aviation manufacturer in its own right.

Technorati Tags: innovation