A spate of data during last few weeks has convinced us that for American businesses the key to survival lies in productivity improvement. We expect pricing pressures to continue as consumers cut back on their spending and shift their consumption patterns to select lower-priced goods and services. Productivity improvement will need to come from several parallel strategies: cost-cutting, business process redesign, outsourcing, offshoring, and even exiting certain businesses that do not fit into the evolving economic system.
That is why a disappointing job report this morning did not surprise us. After all, there are so many other economic indicators that have shown that US economy is still very choppy. Indeed we have made progress, but not much to talk about.
Let us review some of the recent developments:
That is why a disappointing job report this morning did not surprise us. After all, there are so many other economic indicators that have shown that US economy is still very choppy. Indeed we have made progress, but not much to talk about.
Let us review some of the recent developments:
- Average income of Americans continues to fall.
- GDP growth is not enough to give a strong boost to the economy yet.
- Taxes are likely to rise in 2005 due to a huge deficit.
- As a result, consumers are cutting back on spending.
- It is also expected that we might touch the record $50 a barrel oil price, the Fed is expected to raise interest rates again next week, and we were all wrong to celebrate the improvement in job market now that the data has been revised downward even for May and June.
Implications for businesses
- Evaluate your cost position and benchmark yourself against your competitors.
- Re-evaluate your pricing strategy. You might need to ramp up production of lower-priced goods for selling in the US. For luxury goods, you will need to find new markets (there are niches in China).
- Productivity improvement will be critical for survival. As indicated above, parallel strategies will be needed to improve productivity. Pick a portfolio of initiatives to drive cost out of your operations.
- Lower average incomes are here to stay. Think long-term. While promotions and discounts will be helpful in maintaining sales, business leaders need to think what they will need to do long-term to serve Americans who adjust to a lower quality of life.