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ADP Employment Report: Solid Job Growth Gathers Steam

Private-sector employment increased by 217,000 from January to February on a seasonally adjusted basis, according to the latest ADP National Employment Report released today. The estimated change of employment from December 2010 to January 2011 was revised up to 189,000 from the previously reported increase of 187,000. This month’s ADP National Employment Report suggests continued solid growth of nonfarm private employment early in 2011. The recent pattern of rising employment gains since the middle of last year was reinforced by today’s report, as the average gain from December through February (217,000) is well above the average gain over the prior six months (63,000).

The fears of a jobless recovery may be receding but the US economy has a long way to go before pre-recession employment levels are achieved. As we stated previously the economy needs to create over 200,000 jobs per month for 48 consecutive months to achieve pre-recession employment levels. The six month average of 63,000 is still well below the required rate of job creation for a robust recovery to occur.  The Unemployment Rate still exceeds 9%.

The February report is encouraging because it points to an accelerating pace of job creation. The post Christmas season employment surge represents a 30,000 job gain over January’s strong report that triples the six month moving average. The service sector accounted for over 200,000 of the job gains. The manufacturing and goods producing sector combined to create 35,000 jobs. Construction continues to mirror the moribund housing market shedding an additional 9,000 jobs during the month. The construction industry has lost over 2.1 million jobs since its peak in 2008.

The robust recovery in the service sector is welcomed but sustainable economic growth can only be achieved by a robust turn around in the goods producing and manufacturing sectors. Service sector jobs offer lower wages, tend to be highly correlated to retail consumer spending and positions are often transient in nature. Small and Mid-Sized Enterprises (SME) is where the highest concentration of service jobs are created and the employment figures bear that out with SMEs accounting for over 204,000 jobs created during the month of February.

Large businesses added 13,000 jobs during the month of February. The balance sheets of large corporations are strong. The great recession provided large corporates an opportunity to rationalize their business franchise with layoffs, consolidations and prudent cost management. Benign inflation, global presence, outsourcing, low cost of capital and strong equity markets created ideal conditions for profitability and an improved capital structure. The balance sheets of large corporations are flush with $1 trillion in cash and it appears that the large corporates are deploying this capital resource into non-job creating initiatives.

The restructuring of the economy continues. The Federal stimulus program directed massive funds to support fiscally troubled state and local government budgets. The Federal Stimulus Program was a critical factor that help to stabilize local government workforce levels. The expiration of the Federal stimulus program is forcing state and local governments into draconian measures to balance budgets. Government employment levels are being dramatically pared back to maintain fiscal stability. Public service workers unions are under severe pressure to defend employment, compensation and benefits of workers in an increasingly conservative political climate that insists on fiscal conservatism and is highly adverse to any tax increase.

The elimination of government jobs, the expiration of unemployment funds coupled with rising interest rates, energy and commodity prices will drain significant buying power from the economy and create additional headwinds for the recovery.

Macroeconomic Factors

The principal macroeconomic factors confronting the economy are the continued high unemployment rate, weakness in the housing market, tax policy and deepening fiscal crisis of state, local and federal governments. The Tea Party tax rebellion has returned congress to Republican control and will encourage the federal government to pursue fiscally conservative policies that will dramatically cut federal spending and taxes for the small businesses and the middle class. In the short term, spending cuts in federal programs will result in layoffs, and cuts in entitlement programs will remove purchasing power from the demand side of the market. It is believed that the tax cuts to businesses will provide the necessary incentive for SME’s to invest capital surpluses back into the company to stimulate job creation.

The growing uncertainty in the Middle East and North Africa is a significant political risk factor. The expansion of political instability in the Gulf Region particularly Iran, Egypt and Saudi Arabia; a protracted civil war in Libya or a reignited regional conflict involving Israel would have a dramatic impact on oil markets; sparking a rise in commodity prices and interest rates placing additional stress on economic recovery.

Political uncertainty tends to heighten risk aversion in credit markets. The financial rescue of banks with generous capital infusions and accommodating monetary policies from sovereign governments has buttressed the profitability and capital position of banks. Regulatory uncertainty of Basel III, Dodd-Frank, and the continued rationalization of the commercial banking system and continued concern about the quality of credit portfolios continue to curtail availability of credit for SME lending. Governments are encouraging banks to lend more aggressively but banks continue to exercise extreme caution in making loans to financially stressed and capital starved SMEs.

Highlights of the ADP Report for February include:

Private sector employment increased by 217,000

Employment in the service-providing sector rose 202,000

Employment in the goods-producing sector declined 15,000

Employment in the manufacturing sector declined 20,000

Construction employment declined 9,000

Large businesses with 500 or more workers declined 2,000

Medium-size businesses, defined as those with between 50 and 499 workers increased 24,000

Employment among small-size businesses with fewer than 50 workers, increased 21,000

Overview of Numbers

The 202,000 jobs created by the SME sectors represents over 90% of new job creation. Large businesses comprise approximately 20% of the private sector employment and continues to underperform SMEs in post recession job creation. The strong growth of service sector though welcomed continues to mask the under performance of the manufacturing sector. The 11 million manufacturing jobs comprise approximately 10% of the private sector US workforce. The 20 thousand jobs created during February accounted for 10% of new jobs. Considering the severely distressed condition and capacity utilization of the sector and the favorable conditions for export markets and cost of capital the job growth of the sector appears extremely weak. The US economy is still in search of a driver. The automotive manufacturers have returned to profitability due to global sales in Latin America and China with a large portion of the manufacturing done in local oversea markets.

The stock market continues to perform well. The Fed is optimistic that the QE2 initiative will allay bankers credit risk concerns and ease lending restrictions to SMEs. A projected GDP growth rate of 3% appears to be an achievable goal. The danger of a double dip recession is receding but severe geopolitical risk factors continue to keep the possibility alive.

Interest rates have been at historic lows for two years and will begin to notch upward as central bankers continue to manage growth with a mix of inflation and higher costs of capital. The stability of the euro and the EU’s sovereign debt crisis will remain a concern and put upward pressure on interest rates and the dollar.

As the price of commodities and food spikes higher the potential of civil unrest and political instability in emerging markets of Southeast Asia, Africa and Latin America grows. Some even suggest this instability may touch China.

The balance sheets of large corporate entities remain flush with cash. The availability of distressed assets and volatile markets will encourage corporate treasurers to put that capital to work to capitalize on emerging opportunities. The day of the lazy corporate balance sheet is over.

Solutions from Sum2

Credit Redi offers SMEs tools to manage financial health and improve corporate credit rating to attract and minimize the cost of capital. Credit Redi helps SMEs improve credit standing and demonstrate to bankers that you are a good credit risk.

For information on the construction and use of the ADP Report, please visit the methodology section of the ADP National Employment Report website.

You Tube Video: John Handy, Hard Work

Risk: unemployment, recession, recovery, SME, political

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March 3, 2011 Posted by | ADP, banking, Basel II, commercial, commodities, credit, Credit Redi, economics, government, labor relations, manufacturing, political risk, politics, recession, regulatory, risk management, small business, SME, social unrest, Sum2, Treasury, unemployment, unions, US dollar | , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , | Leave a comment

ADP Report: Job Creation Proceeds At Turtle Pace

Slow and steady may win the race but the pace of job creation by the US economy  continues to move along at turtle speed.  For the 20 million unemployed and underemployed people the pace of job creation remains painfully slow as revealed by ADP ‘s National Employment Report for October. During the month, private sector employment increased by 43,000 on a seasonally adjusted basis. ADP also revised its employment report for September stating that the economy lost only 2,000 jobs rather then the 39,000 it had previously reported.  Following ADP’s upward revision the private sector has produced 41,000 new jobs during the past 61 days.  For the worlds leading economy with a GDP of almost $15 trillion the lackluster growth in job creation is a troubling indicator of an anemic jobless economic recovery.

The October report arrests the September decline in job growth that reversed  seven consecutive months of positive job creation.  During that time the economy averaged employment gains of 34,000 new private sector jobs per month. This rate of job creation does little to reduce the negative overhang  a 10% unemployment rate is having on economic  growth.   A stabilized and expanding labor market is a key ingredient for a sustained economic recovery. Over the past three years the economy lost over 9 million jobs. For a robust recovery to occur the economy needs to create 200,000 jobs per month for the next four years to return the job market to its pre-recession levels.

As we reported last month the expiration of the Federal stimulus program will force state and local governments to layoff  workers.  Sluggish job creation continues to pressure depleted unemployment funds and the expiration of benefits for many of the unemployed is draining buying power from the economy.

Soft consumer demand  threatens retailers and leisure industry segments and has a spillover effect  on the housing market.  Joblessness is a principal factor in mortgage defaults and contributes to the growing inventory of foreclosed properties held by banks.  The ADP report indicates that during October the US economy shed an additional 23,000 construction jobs. It is estimated that it will take 24 months for the housing market to absorb the existing inventory of foreclosed properties. A  healthy turnaround in the construction  industry will  move in step with the improvement in the housing market conditions.

A sustained recovery will require sector leadership by Small and Mid-Size Enterprises (SME)  as principal drivers of job creation.   SME’s  sector strength has traditionally been in the construction, specialty retail, leisure and service sectors.  Among these segments  only the services sector continues to be a consistent driver for job creation.

Macroeconomic Factors

The principal macroeconomic factors impairing recovery are the continued high unemployment rate, weakness in the housing market, tax policy and deepening fiscal crisis of state, local and federal governments.   The results of this weeks mid-term election and the return of congress to Republican control will encourage the federal government to pursue fiscally conservative policies that will dramatically cut spending and taxes for the small businesses and the middle class.  In the short term spending cuts in federal programs will result in layoffs and cuts in entitlement programs will remove purchasing power from the demand side of the market.  It is believed that the tax cuts to businesses will provide the necessary incentive for SME’s to invest capital surpluses back into the company to stimulate job creation.

Highlights of the ADP Report for October include:

Private sector employment increased by 43,000

Employment in the service-providing sector rose 77,000

Employment in the goods-producing sector declined 34,000

Employment in the manufacturing sector declined 12,000

Construction employment declined 23,000

Large businesses with 500 or more workers declined 2,000

Medium-size businesses, defined as those with between 50 and 499 workers increased 24,000

Employment among small-size businesses with fewer than 50 workers, increased 21,000

Overview of Numbers

The 45,000 jobs created by the SME sectors reverses a decline from September and offsets the 2,000 job cuts by large companies.  The strong growth of service sector  jobs is a positive development.  However the continued softness of goods producing segments and manufacturing continues to indicate the continued decline of  US industrial capacity.  The strong rebound in services  may be the result of the expanding practice of companies utilizing outside contractors to fill human capital requirements.  These types of jobs may mask an underemployed and  transient labor pool forced to accept work at  lower wage scales.

The stock market continues to perform well.  Yesterdays QE2 initiative by the Fed to pump $600 billion into the banking system may allay bankers credit risk concerns and ease lending restrictions to capital starved SME’s.  Despite a projected GDP growth rate of 2%, ADP’s employment figures indicates that the economy continues to dwell at the bottom of an extreme down economic cycle. The danger of a double dip recession still lurks as a remote possibility.  Interest rates remain at historic lows and inflation continues to be benign but its danger grows as a weak dollar continues to flounder forcing oil prices to climb while government debt levels continue to spiral upward.  The balance sheets of large corporate entities remain flush with cash.  Analysts estimate that over $1 Trillion in cash swells corporate treasuries remaining underemployed on lazy corporate balance sheets.  The low interest rate environment  has allowed companies to pursue  deleveraging strategies  considerably strengthening the capital structure of corporate America.  To the dismay of politicians and the unemployed,  economists speculate that deployment of this cash is still a few quarters away from finding its way into the real economy.

Solutions from Sum2

Sum2 offers SME’s the Profit|Optimizer to help them manage risk, devise recovery strategies and make better informed capital allocation decisions.

For information on the construction and use of the ADP Report, please visit the methodology section of the ADP National Employment Report website.

You Tube Video: Theme from Teenage Mutant Ninja Turtles

Risk: unemployment, recession, recovery, SME

November 5, 2010 Posted by | ADP, banking, business, economics, manufacturing, Profit|Optimizer, SME, unemployment | , , , , , , , , , , , , , , , , | 1 Comment

ADP Reports Weak Job Growth

ADP has released its National Employment Report for April.   Non-farm private employment increased 32,000 during  the month on a seasonally adjusted basis.   ADP also reported an upward revision of 19,000 jobs for March.  The two consecutive net employment gains reported by ADP indicates that job loss may have bottomed and the slim increase in employment confirms a positive trend is underway.     The massive governmental intervention to recapitalize the banking sector and initiate stimulus programs have stabilized the economy.  The abatement of extreme risk aversion in the credit markets, favorable interest rates, improving consumer sentiment, low inflation and the dramatic rebound in securities markets are all positive growth drivers for the economy.

Highlights of the ADP  report include:

Estimates non-farm private employment in the service-providing sector increased by 50,000.

Employment in the goods-producing sector declined 18,000.

Employment in the manufacturing sector rose for the third consecutive month by 29,000 jobs.

Employment in the construction sector dropped by 49,000.

Large businesses with 500 or more workers  added 14,000 jobs

Medium-size businesses, defined as those with between 50 and 499 workers increased by 17,000.

Employment among small-size businesses with fewer than 50 workers, increased by 1,000 in April.

Employment in the financial services sector dropped 14,000, resulting in over three years of consecutive monthly
declines.

Overview of Numbers

The net gain of 32,000 jobs for the massive US economy is an admittedly weak gain for an economy that has shed 11 million jobs but it is an indication that the economy is stabilizing.

The correlation of the loss of jobs in construction and financial services is an indication of a US economy that continues to transition its dependency on residential and commercial real estate development.  The difficult conditions in the commercial and residential real estate market will continue as excess inventories brought on by high foreclosure rates continue to be worked off.   As the ADP report highlights construction employment has declined for thirty-nine consecutive months, bringing the total decline in construction jobs since the peak in January 2007 to 2,159,000.  Its clear that the US economy has lost two critical recovery drivers.

Soft conditions in the construction sector weighs heavily on small business job creation.  Most contractors are small businesses and with the anemic rate of new housing construction small business job creation will continue to be soft.

Specialty retail is another large component of the small business market.  Improving consumer sentiment will help this sector.  However small retailers have suffered massive business closures during the recession.  A robust recovery in this sector will not commence until commercial lending for start ups and business expansion becomes more readily available from the banks.

The report also indicates that the goods producing sector of small businesses shed 24,000 jobs during the month  to continue the trend in the deterioration of small manufactures.  This decline was offset by a 25,000 gain in service based jobs.  The  growth of the service sector of the US economy continues at the expense of the manufacturing sector.  The growth of small business service sector indicates that businesses continue to managed fixed costs of their business by outsourcing various services.

This ADP report is a positive indication that we may be at a bottom of the economic cycle.  Bottoms don’t mean that things are improving they indicate that conditions are not worsening.  The economic recovery is still confronted with headwinds.  The oil spill in the Gulf of Mexico, the economic and growing political instability of EU countries and the cooling off of the Chinese economy may present some challenges to a sustained and robust recovery in the United States.

Solutions from Sum2

Sum2 advocates the establishment of an SME Bank to sustain long term economic growth.  Sum2 offers SME’s the Profit|Optimizer to help them manage risk, devise recovery strategies and make better informed capital allocation decisions.

For information on the construction and use of the ADP Report, please visit the methodology section of the ADP National Employment Report website.

You Tube Video: Isley Brothers, Work To Do

Risk: unemployment, recession, recovery, SME

May 5, 2010 Posted by | ADP, banking, credit, manufacturing, real estate, recession, small business, SME, Uncategorized, unemployment | , , , , , , , , , , , , , , , | Leave a comment

Sum2’s Hamilton Plan Getting Scholarly Attention

The following research paper on The Hamilton Plan was written by Deepak Verma, a business student at Baruch College. To our knowledge it is the first scholarly research that incorporates the Hamilton Plans theme of a focus on SME manufacturing.

ISSUES MANAGEMENT PROJECT
Prof. Michael Kirk Stauffer

DEEPAK VERMA
The Societal and Governmental Environment of Business
Baruch College, the City University of New York
December 16, 2009

Table of Content

Topic Page No
1. Executive Summary 2
2. The Issue: Shrinking Manufacturing Base 3-4
3. The Origin of the Issue and Solution 4-5
4. Small & Medium Enterprises; Catalyst of Sustainable Growth 6
5. Initiative for Development of SMEs 7-8
6. Future of SME and SMEs in USA 9
7. Appendix : References 10

EXECUTIVE SUMMARY
Living beyond means is not sustainable. One of the primary reasons of prolonged Economic and Credit Crisis in United States is its low manufacturing base and American way of consuming more than what is produced. This research paper will examine issue of shrinking manufacturing base of USA, unfair and unethical business practices adopted by countries such as China to boost export thereby causing trade deficit to USA, reasons for low manufacturing base and role of small and medium enterprise (SME) manufacturers in developing a sustainable manufacturing base of the US economy.

Prior to coming at Baruch College for pursuing MBA in finance and investments, I worked for over 10 years with Small Industries Development Bank of India (SIDBI), an apex financial institution of India engaged in the development and financing of SMEs and micro financial institutions. Having worked with this financial institution, I realized the importance of SMEs in bringing sustainable economic development and employment creation, particularly in a mixed economy like India.

The paper will discuss on public-private initiative in USA for development of SMEs, their efforts and capital investment for empowerment and financing of SMEs. Various initiatives taken by private and public sector will be analyzed. Efforts have been made to forecast future of SMEs vis a vis manufacturing sector, role of community development financial institutions (CDFIs), and flow of commercial bank credit and private equity investment in SMEs in the United States.

THE ISSUE: SHRINKING MANUFACTURING BASE
Why should shrinking manufacturing base be an issue in a market driven service oriented economy like US? Federal Reserve Chairman Ben Bernanke stated on Feb. 28, 2007, “I would say that our economy needs machines and new factories and new buildings and so forth in order for us to have a strong and growing economy.” Strong Manufacturing base is the only solution to rising trade deficit and industrial job loss. Manufacturing promotes innovation which leads to investments in equipment and people, research and development, improved products and processes and increase in productivity and higher standards of living. Increase in manufacturing leads to increase in demand for raw materials and other commercial services.

United States has transitioned from an agricultural economy to Industrial economy to a service economy. Over a period of this transition US has lost its manufacturing base substantially and has been importing goods from around the world which has resulted into huge trade deficit and industrial job losses. IMF has categorized the US current account deficit as unsustainable. Warren Buffet also once commented “The U.S trade deficit is a bigger threat to the domestic economy than either the federal budget deficit or consumer debt and could lead to political turmoil… Right now, the rest of the world owns $3 trillion more of us than we own of them.”

Since the United States joined the WTO, US trade deficit has risen from $150.6 billion in 1994 to $817.3 billion in 2006. US reliance on imports ranges from electronic items to apparels and other consumables. For example, electronic items sold in United States are developed by companies such as Philips, Toshiba, Sony, Hitachi, Samsung and Sharp. We have lost significant market share in Auto Industry also. Toyota has surpassed General Motors to become leading auto manufacturer in terms of global sales. Ironically, items such as clothing and apparel where USA had its dominance are also being imported from foreign countries. Over 90 percent of clothing and shoes sold in the United States are made in foreign countries. US economy has thrived on consumerism which has led to increase in demand for goods over the years but production of domestically manufactured goods has been declining, thereby giving rise to imports from foreign countries and loss of industrial jobs.

Critics of the argument say it is the increase in production efficiencies, resulted from technological innovation and advancement that has resulted in loss of jobs. Additionally, it is the increase in consumption which is the root cause of import deficit rather than shrinking manufacturing base. Undoubtedly long term data indicates an increase in US manufacturing, but the way we are loosing our manufacturing share from last 2 decades and if we continue shrinking, we will soon have no choice but to consume whatever is dumped in our market and will be on the mercy of foreign imported goods. Increase in manufacturing has not kept pace with global growth in manufacturing in USA. Since 2000 global manufacturing growth has been 47%, whereas USA has recorded a growth rate of only 19%.

ORIGIN OF THE ISSUE & SOLUTION
What is causing shrinking manufacturing base in the United States? Is it purely competitive and cheaper products manufactured in Asia and Europe or some other factors are also responsible? Undoubtedly competitive global business environment has severely affected domestic production in the United States, this crisis in large arises due to unfair and unethical business practices adopted by its trading partners mainly China. Some of those practices are significant government subsidies, currency manipulation, large-scale dumping in the U.S. market, and other market-distorting practices. Additionally, unfavorable govt. policies, tax structure, increase in cost involved in healthcare, litigation, and regulation has significantly affected the bottom line. Increase in cost and strict regulation forced manufacturing units to move their facilities to other countries where companies do not face those kinds of impediments. Companies operating in the U.S. started outsourcing low-value tasks like simple assembly or circuit-board stuffing, but lower cost of outsourcing and shrinking margin lured them to continue outsourcing sophisticated engineering and manufacturing capabilities that are crucial for innovation in a wide range of products. As a result, the U.S. has lost or is in the process of losing the knowledge, skilled people, and supplier infrastructure needed to manufacture many of the cutting-edge products it invented.

Is there any way to bring back our manufacturing base?
The view that the U.S. should focus on R&D and services is completely flawed. Manufacturing is part of the innovation process and United States has to expand its manufacturing base to remain a world leader.

Following may be suggested to address the issue:

(1) Increase the tariffs on foreign goods so that they are more expensive than domestic goods.
(2) Demand the same level of quality in all foreign goods as American goods.
(3) Diplomatic measures should be taken to create pressure on foreign countries particularly China to stop manipulating their currencies.

Efforts should be made to open up foreign consumption markets adequately to U.S. producers so as to increase export and minimize trade deficit and should endeavor to combat predatory foreign trade practices aimed at undermining U.S. producers in their home market. Next big step is to promote small and medium enterprises to set-up manufacturing units.

SMALL & MEDIUM ENTERPRISES (SMEs); CATALYST OF SUSTAINABLE GROWTH
The issue of shrinking manufacturing base in the United States has been discussed by economist, policymakers, industrialists, and think tanks since economic integration and various measures to improve domestic manufacturing base have been suggested. But considering our free market dominance no sincere efforts were made to expand manufacturing base. Alarming rise in trade deficit and current economic and credit crisis which resulted in to massive industrial job loss has called for immediate intervention of private-public participation to protect and develop domestic manufacturing base for long term sustainable economic growth of United States. It is this time only that the role of SME manufacturers was felt inevitable to address this alarming issue.

President Obama during an interview said “We’ve got to make sure that we’re cultivating small businesses and entrepreneurs who are going to be driving employment growth,” the President said, “so that 20 years from now we can look back and we can say, ‘This was the pivot point, this is where we started to turn the corner.”

US need to change course at this point of time and need to develop a network of small and medium enterprises focusing on cleaner and green technology. The U.S. can explore strategies used in emerging markets for development of SMEs. According to Hau L. Lee, a professor at Stanford Graduate School of Business, “America needs large industrial zones devoted to specific industries–similar to zones in Taiwan, Singapore, Malaysia, and much of China. Such areas offer tax breaks, cheap or free land, workforce training, plenty of water and power, and agencies that serve as one-stop shops for all of the necessary permits and regulatory approvals.” A national level specialized financial institution may be created to provide low cost credit to newly setup SMEs in the manufacturing sector. US strength lies in high end technology, innovation, R&D, robust infrastructure, and know-how.

INITIATIVE FOR DEVELOPMENT OF SMEs

US govt. runs a number of programs for providing technological know-how, contracting opportunities, counseling and assistance, financing, and R&D facilities to small and medium enterprises. Some of the prominent programs run by US department of commerce are Manufacturing Extension Program, Advanced Technology Program, Technology Transfer, and Small Business Innovation Research (SBIR) Program. State govt. and number of govt. agencies are deployed for implementation of these schemes across the United States. SBA provides technical and financial assistance to SMEs through its partner lending institutions.

On November 17, 2009 The Goldman Sachs Group, Inc. launched 10,000 Small Businesses — a $500 million initiative for development of 10,000 small businesses across the United States. The plan envisaged to provide greater access to business education, mentors and networks, and financial capital to small businesses. Lloyd C. Blankfein, Chairman and CEO of Goldman Sachs quoted “Small businesses play a vital role in creating jobs and growth in America’s economy.” Warren Buffett, CEO of Berkshire Hathaway also mentioned “Our recovery is dependent on hard working small business owners across America who will create the jobs that America needs. I’m proud to be a part of this innovative program which provides greater access to know-how and capital – two ingredients critical to success.”

Sum2 LLC, a firm which assists SMEs in implementing sound business practices by offering a series of programs and products, announced The Hamilton Plan on Labor Day. The Hamilton Plan is a ten point program to foster the development of manufacturing in the United States by tapping the entrepreneurial energy of small and mid-size enterprises (SME). The Hamilton Plan requires concerted focus of investment capital to fund development and establishment of an SME Development Bank (SDB) which will focus, manage and administer capital formation initiatives to incubate and develop SME manufactures.

I contacted James McCallum, CEO of Sum2llc to discuss the issue of shrinking manufacturing base and how SMEs can help in restoring manufacturing base in the United States. In response to my comment here is what he stated “It is pretty amazing that the United States has not done more to specifically encourage and address the unique needs of this critical economic driver. Many Asian countries are miles ahead of the US in SME banking and capital formation. These banks have extensive portfolios of finance products and technical assistance they provide to SME’s. The reasons that the US lacks focus in this area are many. US commitment to free market forces has badly warped our economic infrastructure. SMEs in the US have primarily relied on community banks for financing. Most of which went for real estate and construction projects. SME manufactures have just about disappeared from the economic landscape of the US. The credit crash and the economic malaise are awakening our understanding of the critical nature of SMEs and our need to manufacture products. Goldman’s 10,000 Businesses Initiative coalesces nicely with the Hamilton Plan we developed in 2008.”

USA MANUFACTURING & SMEs IN YEAR 2030

With the concerted government efforts for promotion and development of SMEs and private sector initiatives such as “10,000 Small Businesses plan” by Goldman, SMEs will be largely benefited having access to innovative financial products and services from a network of financial institutions. Ten point program suggested in Hamilton plan, if implemented, will bring cluster based development of SME manufacturers. Cleaner and green technology will drive long term sustainable growth, increase national income and result in employment creation. Healthy SMEs will be focusing on export of goods thereby reducing the trade deficit and offer a new market for commercial banking sector. High-tech growth oriented SMEs will also have access to private equity investments and will offer a new avenue of diversification to private equity industry.

But the task of SME development is a challenging task and requires strong will on the part of different stakeholders. SMEs are considered to be the riskiest segment of borrowers from a financial institution’s perspective and thus struggle for timely and adequate credit. Access to technical and market information, financial assistance and trained and educated workers is the biggest challenge for SMEs. Future SMEs require sound business practices such as corporate governance, risk management, stakeholder communications and regulatory compliance.

I believe that SMEs are sine qua non for manufacturing sector & I can foresee a bigger space for SMEs in next 20 years from now. I am so intrigued with the idea of SMEs development and their contribution in the economic growth that in the long run I wish to work as a freelancer offering consultancy and advisory services on financial and strategic matters to SMEs. I would work with a network of financial institutions, venture capitalists, engineers, environmentalists, social workers, suppliers, and policy makers so as to offer SMEs a comprehensive set of services.

APPENDIX: REFERENCES

U.S. Needs to Return to Its Manufacturing Base
http://seekingalpha.com/article/119136-u-s-needs-to-return-to-its-manufacturing-base

Securing America’s Future: The Case for a Strong Manufacturing Base, A Study by Joel Popkin and Company, Washington, D.C. June 2003, Prepared for the NAM Council of Manufacturing Associations

http://www.pmihome.org/Popkin_Study_3-03.pdf

President predicts it will take decades to revive declining U.S. manufacturing base?

http://www.sodahead.com/united-states/president-predicts-it-will-take-decades-to-revive-declining-us-manufacturing-base/question-637119/

Manufacturing & Investment Around The World: An International Survey Of Factors Affecting Growth & Performance, ISR Publications, revised 2nd edition, 2002. ISBN 978-0-906321-25-6.

Economy Watch: Economy, Investment & Finance Report

http://www.economywatch.com/world_economy/usa/export-import.html

USA Manufacturing output continues to increase (over the long run), Curious cat, Investing and economics blog

http://investing.curiouscatblog.net/2008/12/02/usa-manufacturing-output-continues-to-increase-over-the-long-term/

Alliance for American Manufacturers http://www.americanmanufacturing.org/issues/manufacturing/the-us-manufacturing-crisis-and-its-disproportionate-effects-on-minorities/

Can the future be built in America? http://proquest.umi.com.remote.baruch.cuny.edu/pqdweb?index=28&did=1860761601&SrchMode=1&sid=2&Fmt=3&VInst=PROD&VType=PQD&RQT=309&VName=PQD&TS=1259505905&clientId=8851

TO SAVE AMERICAN MANUFACTURING: USBIC’S PLAN FOR AMERICAN INDUSTRIAL RENEWAL BY Kevin L. Kearns, Alan Tonelson, and William Hawkins

http://americaneconomicalert.org/USBIC_Save_American_Manufacturing_Jobs_Plan.pdf

Goldman Sachs Launches 10,000 Small Businesses Initiative

http://www2.goldmansachs.com/our-firm/press/press-releases/current/10-k-business.html

Goldman Sachs as Social Entrepreneur https://sum2llc.wordpress.com/

Hamilton Plan by Sum2llc https://sum2llc.wordpress.com/2008/09/03/sme-development-bank/

You Tube Video: Isley Brothers, Work to Do

Risk: SME, manufacturing, economic revitalization, social wealth

February 3, 2010 Posted by | business, commerce, credit crisis, economics, Hamilton Plan, manufacturing, recession, SME, Sum2 | , , , , , , , , , , , , , , | 1 Comment

Prognostications and Expostulations for 2010

We’re going out on a limb with this one or given thats its winter we’ll say we’re walking on thin ice.   We’ll gaze into the crystal ball and pontificate on eleven  subject areas for 2010.  With some we hope we will be wrong.  With some we hope we will be right.

1.  Stock Market:  Buoyed by well managed earnings by the large multinational companies in the DOW, principally as a result of cost reduction initiatives and exposure to global markets the Index will finish up 6% and close at 11, 011 on the last trading day of 2010.   Given an inflation rate of 4% investors will realize a 2% gain on equity investments in DOW constituents.  S&P 500 and NASDAQ will be flat gaining 2% for the year.

2.  Iraq War:  The war in Iraq will continue to wind down.  America will scale down its military presence in the country.  Troop levels in the country will approximate 85,000 by the close of 2010.  Though direct American military involvement in conflicts will decline,  Iraq will experience civil unrest as Kurd nationalists, Shiite and Sunni Muslims seek to protect their political and economic interests.

3.  Afghanistan War:  The escalation of America’s military presence in Afghanistan will move the theater of war further into Pakistan.  The Taliban will be satisfied to harass US forces by engaging in a guerrilla war.   Taliban and Al-Qaeda supporters will use the opportunity to increase the level of urban terrorist attacks in the large cities of Pakistan.  Al-Qaeda confederates will seek to reestablish base of support in Somalia, Yemen and ties will begin to emerge in Latin American narco-terror states.

4. Iran: The political situation in Iran will continue to deteriorate.  This is a positive development for regional stability because it will force the ruling regime to cede its nuclear program development initiatives.  Iran will not be able to capitalize on the US draw down in Iraq.  It will become increasingly isolated as Hezbollah and Hamas pursue actions that are less confrontational to Israel in Palestine and Lebanon.   The ruling Caliphate position will weaken due to internal political dissent and external economic pressures.

5.  China:  It will be a year of ultra-nationalism in China.  Its stimulus program that is targeted to internal development will sustain a GDP growth rate of 8%.  China will use this opportunity to strengthen the ideological support of its citizens to fall in line with the national development initiative.  Globally China will continue to expand its interests in Africa and will cull deeper relationships with its Pacific Rim club member Latin America.  China will continue to use US preoccupation with its wars in Afghanistan, Iraq and skirmishes in Yemen and Somalia as an opportunity to expand its global presence with a message of peace and cooperation.

5.  US Mid Term Elections:  Republicans will gain a number of seats in Congress.  The continued soft economic conditions, state and local government fiscal crisis, war weariness and cut back in services and rising expenses will make this a bad year for incumbents and the party in power, namely the democrats.  Sarah Palin will play a large role in supporting anti-government candidates drooling over the prospect of  winning a seat in government.

6.  Recession:  Though the recession may be officially over, high unemployment, home foreclosures and spiking interest rates will hamper a robust recovery.  The end of large government stimulus programs  and the continued decrease in real estate values also present strong headwinds to recovery.  We predict a GDP growth rate of 2% for the US economy.  Outsourcing will abate and a move to reintroduce SME manufacturing  will commence.

7.  Technology:  The new green technology will focus on the development of nuclear power plants.  The clash of the titan’s between Google’s Droid and Apple’s I Phone will dominate tech news during the year.  Lesser skirmishes  between Smart Phones makers or the war of the clones will continue to explode altering the home PC market and continue to change the market paradigm for old line firms like DELL, Microsoft and HP.   SaaS or cloud computing will gain on the back of lean business process initiatives and smart phone application development and processing infrastructure will encourage cottage industries fueling the cloud and making for some new millionaires.  The tension between the creators of content and search and delivery will begin to tilt back toward the content providers.  Litigation involving social networking sites will be filed to create safeguards against  its use  as a tool to control and manipulate behaviors thus threatening civil liberties and privacy rights.

8.  Culture:  The Googlization of civilization will allow individuals to embrace paternal corporatism as a pillar to add efficiency and order to their lives.  Multiculturalism will continue to grow in the US.  However a growing political backlash against it will become more of a prominent theme as Teabaggers agitate for a return to the true values of America.  Electronic arts will make major leaps and bounds as commodification continues to be a driving force in the world of art.  Printed words like books and newspapers will continue to dramatically decline.  Writing, drawing and playing musical instruments skills will  ebb as people prefer to develop digital skill sets.  Texting and Tweeting make for poor practice for extended compositions.

9.  Latin America:  Instability will grow in Latin America as narcodollars continue to undermine political stability in Columbia, Venezuela, Mexico and Panama.   The US will increasingly become involved in the conflicts between petro and narcodollars.  Mexico’s stability will be increasingly undermined by the power and corruptible influence of the drug trade.  China’s influence on the continent will grow.

10. European Union:  The EU will continue to manage itself for stability.  It will yearn to return to its aristocratic roots and will become increasingly conservative.  It will continue to have a complex relationship with the expanding Muslim community.  A call to deeper nationalism will arise out of a growing influence of Islam and the inefficiencies of EC bureaucrats in Belgium.  The EU will continue its union of expediency to counterbalance their distrust of Russia and their distaste for America.

11.  Environmental Justice:  Though awareness continues to grow concerning the need to mount and implement large scale solutions to halt the problem of global climate change;  the political will and resources required to drastically alter the planets current trajectory in growth of carbon emissions from the burning of fossil fuels remains unaltered.  Social responsible enterprises, small businesses and individuals continue to make a difference.  Eco friendly small businesses, urban farming, capital formation initiatives around renewable  energy  businesses are hopeful signs of a market response to the pressing problem.  China is investing heavily in becoming a market leader out of business savvy and environmental necessity.  Until the great powers of the world can come to some  collective agreement on how to limit , cap or trade carbon credits we’ll have to be content to separate the trash and recycle, reuse and reduce.

You Tube Music Video: Donald Byrd, Stepping Into Tomorrow

Risk: unfulfilled predictions will make me look bad

January 5, 2010 Posted by | commerce, environment, manufacturing, sustainability | , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , | 3 Comments

Rutgers Job Study: Full Employment By 2017!

help wantedRutgers University has released a sobering study on expected recovery rates in employment levels for the United States economy.   The study,  America’s New Post-Recession Employment Arithmetic indicates that the employment deficit has grown so large that it may take until 2017 for the nation’s labor market to return to its pre-recession level.

The study, released by the Edward J. Bloustein School of Planning and Public Policy is a cause for concern.  The study reports that the US economy has shed over 7 million jobs since the recession officially began in December 2007.  This has reduced the total number of jobs in the United States by 5.8%, the largest drop during any downturn since World War II.  The authors of the study, James W. Hughes and Joseph J. Seneca, project that the employment deficit will total 9.4 million private sector jobs by the end of the year.

The study estimates that if the economy adds more than 2 million jobs annually starting next year, it would take until August 2017 – more than seven and a half years – to both recover the jobs lost since December 2007 and create new positions for the roughly 1.3 million people who join the labor force each year.

Hughes and Seneca believe that a recovery in 2017 may be an optimistic assumption.  An economic expansion that lasts for seven years is about 50 percent longer than the average for postwar recoveries.   Hughes and Seneca refer to the last ten years as “The Lost Employment Decade,” because the U.S. is on track to finish this year with 1.3 million fewer total jobs than it had in December 1999. “This is the first time since the Great Depression of the 1930s that America will have an absolute loss of jobs over the course of a decade” the report states.

The past decade has witnessed a startling reversal in economic fortunes for the US economy.   The U.S. finished the 1990s with 19  million more private sector jobs than it had at the start of the decade.   Approximately 16 million jobs were created during the 1980s.  Before the recession,  annual rate of job growth was about 1 million jobs per year, about half of the growth rates of the previous two decades.

Hughes and Seneca believe that this will force states into fierce competition to realize job growth.  States must respond by creating desirable environment for business based on costs, affordability, business climates, support infrastructure, labor force quality and tax policies.

We believe that joblessness and unemployment continue as significant threats to economic growth.   The conception of  the unemployment rate as a lagging indicator is emerging as a lead driver inhibiting economic recovery.  High unemployment continues to inhibit consumer spending and works against a rebound in the housing market and related construction industries.  Retailers are already bemoaning the bleak forecast for this years holiday shopping season.  State and local governments reeling from dwindling tax receipts are beginning to crack under the strain to fund basic community services, public schools and social assistance programs.

The structural dysfunction of the  American economy is a critical issue that must be addressed.  A concerted program aimed at the development and incubation of SME manufactures will encourage the entrepreneurial energy and kick start badly needed economic drivers  to ignite a recovery.  Sum2 advocates the adoption of The Hamilton Plan and the creation of an SME Development Bank to reestablish sustainable growth and national prosperity.

You Tube Music Video: Bruce Springsteen Seeger Sessions, Pay Me My Money Down and Erie Canal

(RU and Bruce, Perfect Together)

Risk: unemployment, job creation, SME, political stability, recession,

October 8, 2009 Posted by | associations, business, commerce, economics, government, Hamilton Plan, labor, manufacturing, poverty, recession, risk management, SME, unemployment | , , , , , , , , , , , , , , , , , , , | 2 Comments

ADP Reports 250,000 More Jobs Lost in September

job-loss-absoluteADP has released its National Employment Report for September   Nonfarm private employment decreased 254,000 during  the month on a seasonally adjusted basis.   The ADP report indicates that job loss continues to decelerate.  Though slowing, the unemployment rate continues to creep higher.  The impact of the loss of  a quarter of a million jobs is an indication that economic recovery remains sluggish and the US has a long way to go before the benefits of wide spread sustainable growth are realized.

The evaporation of jobs will continue to hinder a broad recovery in the housing market.  Yesterday I heard a speaker claim that approximately 25% of homes in Florida are in foreclosure or are behind in their mortgage payments.  It is an incredible statistic that speaks volumes about the acute systemic problems of the service based, boom/bust Florida economy.

Highlights of the ADP  report include:

Employment from July to August was revised from a decline of 298,000 to a decline of 277,000

September’s employment decline was the smallest since July of 2008

Employment losses have diminished significantly over the last two quarters

Nonfarm private employment in the service-providing sector fell by 103,000

Employment in the goods-producing sector declined 151,000

Employment in the manufacturing sector dropped 74,000

Employment with large businesses with 500 or more workers declined  by 61,000

Employment with medium-size businesses with between 50 and 499 workers declined 93,000

Employment among small-size businesses with fewer than 50 workers, declined 100,000

Employment losses among small-size businesses have diminished in each of the last six months

Construction employment dropped 73,000. This was its thirty-second consecutive monthly decline, and brings the total decline in construction jobs since the peak in January 2007 to 1,632,000.

Employment in the financial services sector dropped 19,000, the twenty-second consecutive monthly decline.

Sum2 advocates the establishment of an SME Bank adoption of The Hamilton Plan to address the recession.

For information on the construction and use of the ADP Report, please visit the methodology section of the ADP National Employment Report website.

You Tube Video: The Silhouettes, Get A Job

Risk: unemployment, recession, recovery, political

September 30, 2009 Posted by | banking, commerce, economics, Hamilton Plan, manufacturing, recession, SME, Sum2, sustainability, unemployment | , , , , , , , , | Leave a comment

Drivers Wanted!

fuel efficientThe cash for clunkers rebate program is a great success.  The first $2. billion allotted to the program was spent within two weeks.  The recently approved additional allocation of $1 billon for the program will no doubt be taken advantage of by consumers.   American’s are always keen to do a deal and can’t wait to drive away in a brand new ride unwritten in part by our most favorite relative, Uncle Sam.

The government’s goals of the cash for clunkers program are being achieved.  The program  will have a positive environmental impact as more fuel efficient vehicles replace the old gas guzzling clunkers.  The program has also allowed car manufacturers to liquidate 2009 inventories that were piled high due to tepid demand borne from the recession and credit crisis.  The program may also help cure consumers recession psychology and their new found aversion to purchasing new stuff.

It is hoped that this boost to car manufacturers may kick start the economy.  Ford Motor Company’s  recent positive earnings announcement and GMs and Chrysler’s arrest of declining quarterly sales are one of the “green shoots” of recovery pointed to by politicians and economists.  However a huge question remains concerning how to incubate long term sustainable drivers that will end the recession?  The $600 tax rebate checks sent out by Paulson last year provided a temporary boost to the economy.  Its effects did little more then forestalling the more deleterious effects of the growing recession.  See The Charge of the Light Brigade.  Hopefully cash for clunkers will help to kick start some recovery momentum to an economy aching for relief from systemic malaise.

The US economy has grown overly dependent on a few industry sectors that include services, real estate, banking and construction.  The SME service sectors have been devastated by the contraction of credit, unemployment and the curtailment of consumer demand brought on by the recession.  During the good times, these sectors were driving economic growth and expansion.  Unfortunately these sectors remain conspicuously absent as leading drivers in the new emerging  economy.

Macroeconomic factors unpinning recovery continue to be negative for these sectors.  Hi tech and manufacturing seen as critical to a lasting recovery have also been a bit lethargic.   These industries are capital intensive and with the capital markets still seeking a firm recovery footing these sectors will remain weak.   Health care and pharmaceuticals are key sectors in the US economy, but political uncertainty around reforming industry practices and much needed restructuring hampers the sectors ability to assume a leading position in recovery scenarios.

Last year Sum2 published The Hamilton Plan, a Ten Point Program to incubate small midsized enterprise (SME) manufacturers.  At its core, the plan seeks to encourage capital formation initiatives from public and private sources.  Manufacturing is key to any sustainable economic recovery.  Our ability and desire to link manufacturing to the entrepreneurial capabilities and business skills of SME’s to address targeted needs could well be the drivers that finally steer us out of the recession.

Risk: recession, SME, manufacturing

August 10, 2009 Posted by | commerce, credit crisis, economics, Hamilton Plan, manufacturing, private equity, psychology, recession, SME, sustainability, Uncategorized | , , , , , , , , , , , , , , | Leave a comment

Job Loss Decelerating?

ADP has released its  National Employment Report for July reporting a 371,000 decrease in non-farm private sector jobs.  ADP has also revised its numbers for May from a decline of 473,000 to a decline of 463,000.

The ADP report states, July’s employment decline was the smallest since October of 2008.  As a trailing economic indicator, unemployment is expected to continue to rise for the next few months.  As the recession recedes and the  economic recovery takes hold employment is likely to decline for at least several more months, albeit at a diminishing rate.

Highlights of the report include:

The report estimates non-farm private employment in the service-providing sector fell by 202,000.

Employment in the goods-producing sector declined 169,000, with employment in the manufacturing sector dropping 99,000, its smallest monthly decline since September of 2008.

Large businesses, defined as those with 500 or more workers, saw employment decline by 74,000, while medium-size businesses with between 50 and 499 workers declined 159,000.

Employment among small-size businesses, defined as those with fewer than 50 workers, declined 138,000.  Since reaching peak employment in January 2008, small-size businesses have shed nearly 2.4 million jobs.

In June, construction employment dropped 64,000.  This was its thirtieth consecutive monthly decline, and brings the total decline in construction jobs since the peak in January 2007 to 1,483,000.

Employment in the financial services sector dropped 26,000, the twentieth consecutive monthly decline.

The full report can be accessed here:  ADP National Employment Report

Risk: unemployment, recession

August 5, 2009 Posted by | economics, manufacturing, recession, SME, Uncategorized, unemployment | , , , , , , , , | Leave a comment

Politicians Get Wind of Contaminated Drywall

chinese-drywall-inspection

As reported on this blog back in February, the problem of contaminated drywall residential home developers, suppliers  and construction companies imported from China for new home construction is growing and the issue is beginning to raise a stink in Washington.  Senators from a number of states are fuming about the extent of the problem.  The use of contaminated drywall in new home construction spans many states.  Florida in particular is reported to be severely effected by this product liability event.  It is estimated that contaminated drywall was installed in over 35,000 homes. Risk mitigation experts believe that it would cost approximately $100,000 per home to remove, dispose and replace  the drywall.  Developers, banks, construction companies and consumers still reeling from the recession and credit crisis would be hard pressed to meet that huge expense.

The problem of contaminated drywall has many dimensions.  It is a product liability issue, ecological hazard and has dramatic contagion capabilities that can effect financial solvency, community quality of life and international trade relations with China.  At its root, the issue of contaminated drywall is a dramatic example of the severity of  the consequences of a poorly managed supply chain.  See our post For the Want of a Nail: Lennar Homes.

The Biz Journal Article can be read here: Senators Outraged Over Chinese Drywall.

More information on Chinese drywall contamination from NACHI

May 29, 2009 Posted by | environment, manufacturing, product liability, recession, reputational risk, supply chain, sustainability | , , , | 1 Comment