Economic Uncertainty, Corporate America, and You

I’m studiously trying not to watch CNBC this morning and the continuing tumultuous negative slide of the financial markets. Markets are reacting badly to the unsatisfying political “resolution” to the U.S. bumping up against the debt ceiling. Although Congress acted in time to avoid a default, neither their constituency nor economists were impressed with how that unfolded and what it bodes for the future. That was reflected in S & P’s downgrade of the U.S. debt from AAA to AA+, and is part of what sent the markets back into a downward spiral this morning.

As a corporate employee, here’s why you should care, even if you aren’t an “investor”:

• You ARE an investor if you have a 401K. You may have lost a chunk of your value in the last several weeks. Reviewing your next statement will be unpleasant.

• Many corporations currently have strong balance sheets. Business has been fairly good over the last two years, and they have been stockpiling capital. That looks good on paper, but is a sign that they don’t trust the financial climate. Capital is a hedge against economic uncertainty. In better times, profits would be invested into growth – including the creation of new jobs. No new jobs – no new opportunities for you.

• A lack of job growth results in limited turnover. Workers are averse to making risky changes while the economy is weak. Corporations know this and some take advantage of the situation by asking people to work more and harder in order to retain their positions. Hard to complain when you know that there are eager job candidates waiting in the wings.

• As a corporate employee, you will experience continued budget constraints. Management wants to keep their financials safe. Expect mid-term budget cuts, especially in regard to salary/bonus increases, travel, training, and consulting. Expect a hiring freeze.

• While companies are still looking for places to cut expenses, your job may still not be safe. Hold off on making any major investments and any risky financial moves. Hold on to your savings; you may need them.

We’ll get through this economic uncertainty, but it’s pretty clear that global financial markets (not just the U.S.) are in a readjustment period where some of the norms have changed. Be aware and take precautionary steps to protect yourself and your livelihood.

Practical Austerity

Global economic conditions have forced the widespread adoption of austerity programs – not just within governments, but also corporations, small businesses, and individual households. Greece’s complex financial issues are constant fodder for world news, and our U.S. government is knotted up in bi-partisan debate over a stunning spend rate that continues to increase the national debt. Most financial struggles have a lower news profile than these stories, but they all have a few things in common from which we can learn.

Managing financials requires a great deal of practicality and discipline. Budgets must be well-conceived and realistic. Actual spending should be governed by the budget, and not obscured via accounting smoke and mirrors. When revenue is down, expenses must be cut. Difficult decisions have to be made by leaders that carefully consider the short and long term impact of available options for action.

Few are fond of operating in an austere environment. Merriam-Webster defines “austere” with words like “cold”, “somber”, “grave”, and “unadorned”. It sounds like there should be little room for fancy expense account meals in an austere budget, doesn’t it?

When money is tight in our own households, we eat ground chuck instead of choice steak, vacation at home instead of flying abroad, combine errands to conserve fuel, use coupons to stretch a dollar, do our own mani/pedis, postpone large purchases, repair electronics instead of replacing them, and mend clothing to avoid buying new. Credit cards are cut up or put away to avoid undue temptation.

Small businesses modify their business plans to stay afloat. They postpone growth, operate with a skeletal staff, renegotiate rents, forge cooperative partnerships, and get creative with marketing. They make the changes necessary to stay in business, even if they are painful.

We hope that big business and government leaders have the courage to apply the practical austerity we employ in our smaller-scale finances. Instead of tolerating posturing to protect executive positions and privilege, let’s hold leaders accountable for making the difficult decisions for the good of employees, stakeholders, and citizens.