Stronger U.S Economy in 2011

Although the U.S. unemployment rate has held at 9.4%, the number of new claims fell to 404,000, below expectations.

Economists indicate claims falling below 400,000 will signal that the U.S. unemployment rate will begin to decline.

Housing sales have also improved. Scotiabank Group has predicted a global recovery with global output expected to grow 4.2% and 4.4%, respectively, in 2011 and 2012. While the majority of this growth will occur in emerging economies, advanced economies, including the United States, are expected to see growth.

Still, for now U.S. unemployment remains stubbornly high with few new jobs being created. There are genuine concerns that the U.S. might be in a jobless recovery, despite Obama's assertions to the contrary.

Time will tell

Spending Cuts Coming in 2011

As with many European countries, Canada will be cutting back on spending in order to rein in the federal deficit.

Finance Minister Jim Flaherty did not provide details but said that the government has to scale back spending in order to eliminate the deficit by 2014.

Opposition parties are concerned that 'turning off the taps' too soon could hurt the economy and especially those most in need.

The Canadian economy is relatively strong (especially compared with other Western economies). This is in part due to the strong demand from developing nations for our natural resources.

We won't know the impact of a reduction in spending until Flaherty reveals the details.

Stay tuned.

U.S. Economy Slow to Recover

Canada's unemployment rate inched up in July, although this appears to be due to layoffs in the Education sector due to the summer months.

However, while the Canadian outlook is not too bad overall, the U.S. outlook is far more uncertain. The economy appears to be recovering, but at a slower pace than anticipated.

Unemployment is still high in the U.S. and it is not likely to drop significantly, at least for the short term

The Negative Impact of Overworked Employees

Overworked employees is nothing new to the corporate world but many executives and company owners are still unaware of the negative impact on a company's bottom that a stressed out employee can have.

In the worst case, the employee can sue the employer, which is never a good thing. Time and money, not to mention the negative impact on reputation, can ruin a small company and cost a larger company.

However, in the vast majority of cases, the overworked employee does not overtly attack his employer. I say overtly because unhappy workers will inevitably find ways to 'get back at' the employer.

This includes using more sick days (either deliberately or simply due to exhaustion), increased accidents at work, sloppy work, errors and infecting the mood of other workers.

This is not necessarily deliberate but in some cases it is. We are currently facing a tough economic outlook and most people are aware that longer hours may be required and that due to layoffs, more work will inevitably fall on their shoulders.

However, taking on new projects, including 'in-house' cost cutting programs, will inevitably lead to resentment and limited success. Assuming these projects even get off the ground, how successful will a 'number 11' priority be when the average employee can't even manage the current 'top 10' priorities?

Given the limited number of employees, maintaining 'business as usual' is tough enough without adding on new projects.

Ever heard of outsourcing some of these projects to the experts...? :)

Economic recovery will be slow according to Buffett

Warren Buffett blamed healthcare for dragging down the economy. The U.S. healhcare is bloated and at 17% of GDP, is a much higher cost than healthcare costs of other countries.

Warren supported Obama's planned reforms but said he would prefer 'Plan C', one that focused on cutting costs.

Warren likened healthcare as a 'tapeworm' and said it was 'eating at our economic body'.

While the bloated healthcare in the U.S. is a serious problem, it is almost certainly not the only issue facing the U.S. economy. A massive debt, unemployment, consumer confidence, a housing crisis, not to mention a costly war, could all be added to the list.

Long-Term Unemployment Increases

Although unemployment figures in the U.S. have remained steady at 10.0 %, long-term unemployment has continued to increase. Long-term unemployment is defined as more than 27 weeks unemployment. 39.8% of unemployed Americans, or 6.1 million Americans have been unemployed for at least 27 weeks as of December 2009. This compares to 22.9% of unemployed Americans, or 3.5 million Americans suffering from long-term unemployment in 2008.

In November 2009, Federal Reserve officials predicted modest economic growth and predicted the jobless rate would drop to between 8.2% and 8.6% in 2011. Still, the Fed cautioned it would take 5 or 6 years for the jobless rate to drop down to pre-2007 levels. Others suggested even longer.

Not all economists agree with these predictions. Some are suggesting unemployment will climb to 10.5% before declining late in 2010.

Either way, 2010 will not be 'business as usual' no matter how much profit Wall Street rakes in. Prudent management of companies, regardless of scale or industry, will do well to keep an eye on expenses as we move into a cautiously optimistic, but uncertain, economic future.

Disciplined Expense Management Can Drive Earnings

The recent news release from Best Buy (December 15, 2009), of their improved Earnings per Share over last year further confirms the wisdom of not only focused expense management, but also of the advantages of focusing on non-core expenses.

Bob Willett, CEO of Best Buy International, noted that "[their] diligent focus on expense management this year" helped improve overall profitability. It was noted that Selling, General & Administrative (S,G&A) expenses decreased from 22.5% of revenue to 21.3% of revenue. This has a direct impact on the bottom line as well as on cash flow. Even with only a 5% decrease of non-production costs, the impact is both real and noticeable.

While the focus of any company should be on increasing sales, sound expense management practices are always essential. Non-core areas, although smaller than core areas, can nevertheless impact the bottom line. Ignoring non-core areas ultimately leads to inflated expenses and lower profits.

At least Best Buy has it worked out.