October 2, 2003
JACK BE US:
U.S.: Corporate America Reaches Its Fighting Weight: Trim, flush, and productive, businesses are ready to answer growing demand (Business Week, 10/03/03)
What's new in the outlook...is that companies are now fit and ready to roll. They have restored their financial health, rid themselves of unproductive assets and bloated inventories, boosted productivity and competitiveness, and increased their profitability. Given these strides -- and a resurgence in demand -- businesses are now willing and able to pull their weight in this recovery. Having Corporate America back in the game will ensure a strong and lasting upturn.IMPROVED FINANCIAL FITNESS is the key to the business sector's turnaround. Amid the talk of supposedly ruinous levels of corporate debt and lingering financial burdens, what has gone largely unnoticed is that corporate balance sheets, in aggregate, have improved significantly over the past year.
The net worth of nonfinancial corporations hit $9.4 trillion in the second quarter, according to recent Federal Reserve data. Corporate wealth has all but regained its peak level reached at the height of the boom in 2000, and it will probably top that mark by the end of the year (chart). Moreover, the rate of balance-sheet improvement in this recovery far outpaces that following the 1990-91 recession. Six quarters into that turnaround, corporate net worth had fallen by $311 billion. In this upturn, it already stands $224 billion higher.
A few debt-laden industries, such as telecom and airlines, are laggards in the balance-sheet cleanup. But on the whole, corporate-sector liabilities have increased by only $385 billion since the recession ended in late 2001. And over the same period, the value of corporate assets has grown by $609 billion on the strength of big gains in real estate holdings and financial assets.
The performance of financial assets relative to debt speaks volumes about just how financially nimble corporations have become.
Has any major economy other than the American ever been described as "nimble"? Posted by Orrin Judd at October 2, 2003 12:30 AM
Let's hope consumer confidence gets it soon.
Posted by: Sandy P. at October 2, 2003 1:44 AMWell, yes, as a matter of fact, that was how Japan's economy was described back in the '80s.
Xerox, for example, was spending as much on product research as Canon in the '80s, but Canon was bringing new and highly desired products to market and Xerox was not.
My favorite remark about US industry is from Arno Penzias, 20 years ago. After becoming head of Bell Labs, he made a tour of all sorts of plants to get a feel for what industry was up to -- something you would benefit from, Orrin -- and came back to write about the adoption of computerized process controls (quoting from memory): industry was making products to tolerances that I would not have believed possible or desirable.
The "or desirable" is the important part.
Posted by: Harry Eagar at October 2, 2003 2:59 AMAn undervalued Yen, the most impenetrable non-tariff barriers in history, and zero cost capital (aside from the old saying of "brand newly reconstructed infrastructure") helped exporting sectors mightily. Yet, the nimbleness of that economy was overstated. It was narrow-based, and in many ways superficial. That is narrow-based is obvious in the failure (if not just mediocrety) of the Japanese financial, construction, energy, sectors. That is superficial could have only been properly guaged by (like it di in the late 1980's) working for a Japanese company. There was little sophistication in using information technology for decision-making, managerial processes were schlerotic, and the nail that popped was supposed ro be hammered down.
Posted by: MG at October 2, 2003 7:29 AMI believe the German and Japanese economies were given a lot of compliments by uncapitalist Democrats in the late 80s and early 90s. I suspect only Bill Clinton would say them today. Well, maybe Carter would, too.
Posted by: jim hamlen at October 2, 2003 8:40 AMHarry:
Actually the opposite was said and recommended for us. It was believed that the top down direction provided by MITI was their advantage. That's why it was Democrats in the '84 campaign who held Japan up as a model.
Posted by: oj at October 2, 2003 8:45 AMHarry:
My copier works perfectly and is made in S. Korea. Five years from now it will be made in N. Korea. We invent stuff, they assemble it. The Third World is just a big Triangle Shirt Factory.
Posted by: oj at October 2, 2003 9:11 AMThe consumer wave of telecom hasn't really happened yet. I see that's where the demand
will be over the next decade.
More integrated service packages will probably
come to dominate the market (PHONE/CABLE/NET).
One key dependency of this scenario is the
federal regulatory system.
Media will boom as film/music and other information will be delivered digitally (on-demand).
This can be done without a major destruction of
the intellectual property regime.
Orrin asked whether any other large economy had been described as nimble. The answer was, obviously, yes.
While some commentators were bemused by MITI (which they got over once it became obvious that the Fifth Generation computer project had failed), just as many were praising Japan's nimbleness.
So, we invent, they steal and we buy. I am not sure how we benefit from that. Once they start buying their soybeans from Brazil, we won't even be able to buy, since we will no longer have any foreign exchange.
Posted by: Harry Eagar at October 2, 2003 4:17 PMHarry:
Our engineers make a hundred thousand a year. Chinese factory workers make hundreds. No American dreams of their child getting a sweet union boondoggle in a plant anymore.
Posted by: oj at October 2, 2003 6:05 PMWe are short of engineers. If all our children become engineers, they will make less.
In fact, they will be like lawyers, mostly unemployed.
And you're wrong about what American parents dream about. Maybe not in New Hampshire. It's different other places.
Posted by: Harry Eagar at October 2, 2003 8:17 PMThey'll still make more than the Bangladeshis who'll be assembling cars by then.
I've great faith in the capacity of our culture to infinitely expand its litigousness to handle more lawyers--an effect/cause relationship that folks fail to comprehend.
The big job market though will be health care especially when the elderly come to outnumber the young.
Not many colleges and universtities offering "push this button then flip this switch" 101 are there?
Posted by: oj at October 2, 2003 11:51 PMYou might want to look up the average income of law graduates in this country. It'll be lower than you imagine.
Posted by: Harry Eagar at October 3, 2003 11:19 PMNo surprise at all considering how much I drag it down.
Posted by: oj at October 3, 2003 11:53 PMHarry:
I doubt if even Dick Gephardt's kids ever dreamed about union membership.
Posted by: quequog at October 4, 2003 11:09 PM