Volatile Earl

Next in the queue: Earl, Fiona, Gaston, with Hurricane Earl now upgraded to a Category 4 storm and approaching the East Coast by late today. According to the National Hurricane Center, “Only a small western deviation of the track to the west would bring the core of the hurricane to the coast.” In preparation for this contingency, mandatory evacuation orders have been ordered for North Carolina’s Outer Banks and Cape Hatteras. Earl is a particularly volatile storm, having been downgraded to Category 3 earlier yesterday, but then revised to Category 4 by the end of the day. Earl’s maximum sustained winds have reached 135 miles per hour and may continue to accelerate. North Carolina is bracing for the possibilities of breaking waves up to 15 feet in height, four-foot storm surges and tornadoes. As the storm continues to move up the Atlantic coast, the long duration of its force winds threaten widespread power outages. By Friday, Earl should be pummeling the Mid-Atlantic States with heavy rains and winds before continuing its projected course over Newfoundland. At the present time, a hurricane watch now extends as far north as Nantucket and Martha’s Vineyard in Massachusetts. The severe weather over the holiday weekend will likely cause revenue losses for businesses in the tourism industry, as the last weekend of summer typically attracts beachgoers. But mitigate the losses by making sure you are prepared. I am doing my grocery shopping and errands in anticipation of working at home tomorrow.

Pushing from Washington to Trenton

I must have a perverse sense of humor, but I did see something funny in the recent controversy over New Jersey’s failure to secure $400 million in federal funds from the federal government in connection with the Race to the Top program. The State’s Education Department submitted the figures for the wrong program year, confusing 2011 with 2009, in New Jersey’s grant application, causing a five-point deduction in the state’s application for education stimulus funds. Finger pointing ensued, with educational leaders outraged with the rigid approach that resulted in NJ’s disqualification. NJ Governor Christie created a memorable photo opportunity when he tapped his finger on the 1,000+ pages of the Race to the Top application, highlighting its needless complexity. Of course, both sides missed the point: improving education is the goal, not figuring out how to shuffle funds between Peter and Paul.

But for anyone who has ever been through the process of dealing with federal disaster relief agencies, both the Federal Emergency Management Agency and the Small Business Administration, it is humorous. The federal government’s interest is in preserving its own bureaucracy, not in aiding disaster relief. You need a PhD in bureaucratese to navigate this opaque system. So to see the state bureaucrats at a disadvantage in dealing with federal bureaucrats brought a smile to my face. Because we are all at a disadvantage in dealing with federal bureaucrats.

World's 8th Largest Economy in Trouble

On July 8 of last year, I posted a blog to update on the California budget crisis:

Further to an earlier blog posting on the topic of California’s decision to pay certain of its contractors in scrip, the State Legislature is considering a bill that would require the State to accept its own paper as payment for taxes, fees and other obligation due. After all, it is only fair that California accept its own currency. Irrespective of what happens with this bill, small business owners should use the IOUs as payments towards California state taxes, city taxes, fees, and other government obligations. If I were a California small business owner, I would even use the IOUs to pay the IRS. After all, the federal government is in a better position to collect from California than I am. This should dampen the pain for the businesses that are put in a terrible cash flow position with this move. Check cashing companies have indicated that they will accept the IOUs, but they charge onerous fees. Better to redeem the notes pack to the state to retire other obligations and conserve cash.

Well, one year later and we are right back where we started. California’s Controller, John Chiang, stated that unless the state passes a budget, he may be forced to resume issuing IOU’s within a few weeks’ time. In response, Republican Assemblyman Joel Anderson drafted a bill that would allow businesses and individuals who receive IOU’s from the state to redeem them with the state for payment of taxes, tuition at state universities, motor vehicle fees and other obligations to California. The bill awaits Governor Schwarzenegger’s signature, but the governor’s finance staff oppose the bill, stating that accepting IOU’s as a currency would deplete the cash balances the state is trying to preserve. Anderson responded that if the governor fails to sign the bill, it is an acknowledgement that California is “such a dead-beat state” that it won’t even accept its own paper. As if running a small business isn’t sufficiently challenging, those businesses that count California as its client may be compelled to finance the state’s recklessness.

Corporate mergers and acquisitions are heating up, with French pharmaceutical giant Sanofi-Aventis, U.S. technology companies Hewlett-Packard and Intel and others preparing to purchase other companies. No doubt strategic acquisitions are a better use of cash than letting it idle on the balance sheet. But this activity represents a vote of no-confidence in our economic future. When such corporate leaders could not think of a more imaginative way to invest in their futures (more research and development to seed future innovation perhaps?) than the pursuit of operational efficiency, this does not bode well. Of course, the profits to be generated will result from cost savings as the acquired company is integrated into its new corporate owner. This suggests more corporate downsizing and rising unemployment. It is hardly likely to persuade small business owners that we should take on debt and hire when the Fortune-500 appear to share our lack of confidence in our economic future. The Administration does not appear to have taken note of the implications of this spate of merger activity as it is pushing for a major piece of legislation for spur small business lending. Even with the capital available, who would borrow?

High Speed Rail Between Switzerland and Italy

From time to time we are reminded of the costs of our failure to maintain our public infrastructure. The mass delays on Amtrak and the Long Island Railroad provided another timely reminder. The disaster began on Monday morning when a fire destroyed train switches of the LIRR. The fire was quickly extinguished, but nevertheless crippled the entire commuter train system. One third of the scheduled trains were canceled, but the inconvenience of rebooking and lengthy travel delays is insignificant relative to the risk of passenger or worker injury due to human error. The New York Daily News reports that train workers are manually operating the machinery that keeps the trains on the tracks, working back-t-back shifts until the equipment is fixed. Isn’t that scary? That problem was followed by a major voltage outage affecting the entire Northeast Corridor. Many Long Island commuters had to book hotel rooms to spend the night in the city, as they could not get safely home. As these incidents become more and more frequent, we have to explicitly consider the cost of doing business in major U.S. cities. I took this photograph when I lived in Switzerland. It is the Cisalpino, the high-speed train I used to take between Zurich and Milan. It runs like clockwork.

Hurricane Danielle

The National Hurricane Center has upgraded Danielle to hurricane status, but its present course suggests it is unlikely to strike the East Coast. The 2010 hurricane season is particularly stressful, as it represents the fifth anniversary of Katrina, bringing back painful memories for those affected. It is forecast to be especially severe, it coincides with another disaster in the Gulf Coast and this is a time when financial resources are strained.

One of the programs developed by Texas emergency authorities, in drawing on the lessons of Katrina, was to consider in some detail the evacuation needs of disadvantaged people. There may be those with cars who lack money for gasoline to make a long evacuation trip. The state arranged for people who need rides to register in advance so that no one would be left behind. We will all breathe a sigh of relief when the peak hurricane season is behind us. Meanwhile, we need to apply innovative thinking such as this example in Texas to plan for extreme demands on limited resources.

This appears to be the year for epic flooding. Rhode Island experienced the worst flooding in 200 years in the spring and many affected businesses have yet to re-open. Tennessee experienced a 1-in-500 year flood event, devastating a good part of the state, including Nashville and the Grand Ole Opry. Germany, the Czech Republic and Poland experienced major floods this year. China’s floods required massive mobilization of public resources. India is underwater and Pakistan’s flooding represents a humanitarian crisis with the very real threat of cholera and other water-borne illnesses. Check out the photographs of the flooding disasters from Asia to Europe here. The tragedies are compounded by the fact the lack of public resources to provide relief aid, as a consequence of a protracted global recession. We should all give whatever we can.

Either One Is Bad

The number of people filing first-time unemployment claims last week rose to 500,000, a level not seen since last November and well above the expectations of most economists. But the true number of unemployed Americans may be much worse than even the grim data of the U.S. Department of Labor indicate. TechnoMetrica Market Intelligence, which conducts polls for major new media such as Investors’ Business Daily, has expressed skepticism about the official unemployment numbers. In its latest poll, TMI found that 28.6% of households surveyed have at least one member who is out of work, which translates to an unemployment rate of over 22%, well above the official 9.5% unemployment rate. The Bureau of Labor Statistics tabulates the total unemployment rate at 16.5%.

The largest source of the discrepancies between official and unofficial numbers is likely the number of people who are underemployed with part-time jobs or temporary positions for which they are overqualified. According to the Department of Labor, 8.6 million Americans fall into this category. Indeed, a Pew Research survey found that more than half of workers had suffered a decline in their income. The “discouraged unemployed”, those who have exhausted their allotted unemployment benefits or who have given up working, also contribute to the undercounting. Whichever measure you use to capture the data, the unemployment rate continues to be unacceptable. Had policymakers focused on supporting the traditional engine of job growth, small businesses, rather than the big bailout strategy, we would be in a different place.

We Did Our Part

As we approach the fifth anniversary of Hurricane Katrina, the American Red Cross is sharing its lessons learned in a report Bringing Help, Bringing Hope: The American Red Cross Response to Hurricanes Katrina, Rita and Wilma. With $2.2 billion in donor funds, the Red Cross provided shelter and emergency financial assistance to evacuees across thirty-one states and the District of Columbia. This assistance reached 1.4 million families or 4.5 million people, nineteen times the Red Cross’ previous record of outreach. The unprecedented scope and scale of the relief effort prompted the Red Cross to enhance planning for large-scale disasters and created new partnerships at the local, state and national levels. The Red Cross also established a national warehouse system, stocked with more than twice the amount of disaster relief supplies previously kept in inventory – enough to support 35,000 shelter residents. The number of trained disaster volunteers was increased from 25,000 to nearly 95,000, including nearly 50,000 who are on call to travel to disasters around the country. Finally, the Red Cross created web tools to connect families online after disasters. It was an extraordinary response to an unthinkable event. The image here shows the certificate we received from the Hurricane Recovery Director of the American Red Cross for our assistance to affected small businesses. We can all do something and the Red Cross report shows the results of many individual contributions.

A Global Phenomenon

It appears to be a global phenomenon: increasingly downbeat small business owners who see a completely different economy than the one that exists for large corporations. The current monthly survey of small business sentiment conducted by the National Federation of Independent Business states “seventy-three (73) percent of the owners report that the current period is not a good time to expand. Of those, 66 percent cite the weak economy as the main reason, but 18 percent cite the “political climate” as the source of uncertainty. This elevated level of concern has prevailed since January 2008 when Congress began debating the “stimulus” and other possible actions to deal with the economy and the government changed hands. The expiration of the Bush tax program and the implementation of the health care bill represent the two largest tax increases in modern history. Add to that serious talk of a VAT and passing cap and trade. Nothing here to create optimism about the future for business owners or consumers. Top that off with government borrowing of $1.8 trillion last year and $1.5 trillion this year and on into the future, it is no surprise that owners are fearful and pessimistic.” The survey didn’t find concerns about small business access to capital as the most credit worthy businesses are reluctant to assume additional debt: “The saving rate is over six percent, good for the long haul but tough for firms that became accustomed to a “zero” savings rate supported by unsustainable home price appreciation and the borrowing that supported. But most “good” borrowers are on the sidelines, still waiting for a reason to seek a loan and expand their businesses.” To read the report in its entirety, click here.