Wednesday, February 11, 2009

Fear can stagger market activity

The recession is causing a lot of companies to focus on their bottom line, some companies are laying off people which is always hard and others are trying to cut expenses in various ways. Cutting expenses is also hard when a lot of things are purchased as long term service contracts. Whether you agree with the efforts the government is taking or not there is no doubt that there will be unforeseen effects to the long term economy caused by the actions they are taking. According to the head of the Congressional Budget Office - Douglas Elmendorf:
"CBO estimates that by 2019 the Senate legislation would reduce GDP by 0.1 percent to 0.3 percent on net."

For perspective on the time frame - 2019 may seem like a long time away, but it is only 10 years, and Zerowait is now in our 20th year in business.

Making strategic business plans in such an environment is very difficult and I think it is one of the main reasons that we are seeing our business prosper. Keeping things going for the short term is a viable alternative. There are no clear signs of how to judge interest rates and business activity over the next year, and according to the Congressional Budget office the current bill could actually hurt long term growth

"In contrast to its positive near-term macroeconomic effects, the Senate legislation would reduce output slightly in the long run, CBO estimates, as would other similar proposals. The principal channel for this effect is that the legislation would result in an increase in government debt. To the extent that people hold their wealth in the form of government bonds rather than in a form that can be used to finance private investment, the increased government debt would tend to “crowd out” private investment—thus reducing the stock of private capital and the long-term potential output of the economy."

Forecasting the future is not possible in these turbulent times - there seems to be no consensus. By the way, the CBO's 10 year time frame is often considered to be two hardware upgrade cycles by our customers. Since the effects of the government's actions are not quantifiable by economists and business analysts it is not a surprise that folks are holding on to equipment longer and stretching life cycles.

I think we are seeing the effects of uncertainty as a business driver.

No comments: