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Poll: economic frailty may result in ‘political mayhem’ Consumer confidence falters By Dennis Jacobe In a session with the House Financial Services Committee, Federal Reserve Chairman Alan Greenspan optimistically stated that the U.S. economy is “at a turning point,” and predicted that low interest rates, increasing stock prices, and the effects of the new tax cut would spur economic growth. Later it was reported that the University of Michigan’s preliminary consumer sentiment index rose in early July from its final June reading. Not surprisingly, many analysts noted that the increase was due to the same factors cited by Greenspan earlier. In sharp contrast, a July 7-9 Gallup Tuesday Briefing Poll* shows just the opposite.The June rise in consumer optimism about the economy did not continue to build in July.The percentage of American consumers rating economic conditions as “good” or “excellent” decreased slightly between June and July, and consumers are slightly more likely to say that economic conditions are getting worse than to say they are getting better. The public gave a similarly tepid response when asked about its expectations for economic growth, interest rates, and inflation over the next six months. Fewer Consumers Expect Increased Economic Growth The percentage of consumers expecting economic growth to increase over the next six months declined from 54 percent in June to 49 percent in July, while the percentage of those expecting growth to decrease rose from 20 percent to 22 percent. Thus, the differential between those expecting an increase in economic growth and those expecting a decrease fell from +34 percent in June to +27 percent in July. Consumer expectations for increasing economic growth are now about where they were in April 2003 (+29 differential). Currently, consumer expectations are much better than they were in January 2003 (+16 differential) and October 2001 (+5 differential), but well below where they were in March 2002 (+43 differential). Still, Consumers’ Interest Rate Expectations Are About the Same… The percentage of consumers expecting the interest rates to increase over the next six months declined from 43 percent in June to 41 percent in July.At the same time, the percentage of consumers expecting rates to go down also declined from 20 percent in June to 17 percent in July. So the differential between those expecting rates to go up and those expecting them to go down was virtually unchanged — +23 in June and +24 in July. Right now, substantially fewer consumers expect interest rates to increase in the months ahead than was the case in April 2002, when 59 percent expected rates to increase and the differential was +45. On the other hand, far fewer Americans expect rates to decline now than in October 2001, when 25 percent expected rates to increase and the differential was -19. . . . As Are Consumer Inflation Expectations According to the July Gallup Tuesday Briefing poll, 48 percent of consumers expect inflation to accelerate in the next six months.This percentage is the same as it was in June, although the inflation expectations differential increased from +32 in June to +35 in July.At present, consumer inflation expectations are not as great as they were a year ago when the differential was +45, but the differential is above its October 2001 level of +27. Consumer Growth Expectations Are Extremely Fragile The failure of consumer expectations to gain additional positive momentum in July is troubling.As the Fed and the analyst community have argued, fiscal and monetary policies are now highly stimulative. Investors showed great enthusiasm in June — maybe even a little too much — and virtually every economic forecaster expects economic growth to improve in the months ahead. Still, contrary to what some observers see in the University of Michigan’s preliminary report, Gallup Tuesday Briefing’s data does not support the idea that consumers or business decision-makers are convinced, at least at this point. In essence, recent economic crosscurrents have made today’s consumer expectations extremely fragile.The hope is that we are experiencing a lag between the implementation and the positive impact on consumer perceptions of the recent A Clear View to the Future. When we first opened our doors back in 1930, our business revolved around replacing glass in automobiles. Today, our family owned business has grown to become the area’s premier full service glass company. We have supplied the doors, windows and hardware for some of Eastern Pennsylvania’s most recognizable buildings. Whether it’s universities, retail stores, or family restaurants, when area businesses want to expand, remodel, or just replace, they look to Mesko Glass. What has not changed is that we take care of your needs, no matter the size of your business. • Store Fronts • Plate Glass Replacements • Solariums, Vestibules & Patio Rooms • Mirror Design & Installation • 24-Hour Emergency Service • Glazing Contractors • Smoking Enclosures •Window Retrofit Packages • Builders Hardware Services • Design & Build Capabilities • Aluminum & Steel Doors & Frames Over 70 years of quality, service and selection Call us today! 1-800-982-4055 economic stimuli.Tax-cut checks and withholding changes don’t even begin to take place until late this month, and lower interest rates can take four to six months to have an impact. With any luck, consumer optimism — and even business optimism — will build in the months ahead and we’ll see a surge in consumer/business optimism and a much stronger economy later this year and into 2004. If not, today’s economic fragility may well translate into political mayhem as both major parties recognize that next year’s elections could be very difficult for many of today’s officeholders. *Results are based on telephone interviews with 1,006 national adults, aged 18 and older, conducted July 7- 9, 2003.For results based on these total samples, one can say with 95 percent confidence that the margin of sampling error is ±3 percent. Middle market firms, citing improving economy, vow to invest in technology From competition within the middle market to vying with larger competitors and new companies entering the market, middle-market business leaders are feeling the pinch of a heightened competitive environment, according to findings from the Grant Thornton Survey of Middle-Market Business Leaders. Ninety-four percent cite competition as more intense or as intense as one year ago, while just 6 percent say the competitive environment is less intense. “As the market has tightened, so, too, have the competitive pressures on middle-market companies,” says John Desmond, partner in charge of the Business Leaders Council.“Companies, especially those in the middle-market, are not only fighting for new business — often at lower margins — but many are also looking for new ways to keep existing customers from taking their business to the competition.” Additional survey highlights: Survey respondents cited a greater focus on price (89 percent), more knowledgeable customers (82 percent), and less client loyalty (81 percent) as the top business issues related to competition. Two-thirds (74 percent) of middle-market business leaders believe it is more important today for employees to understand what needs to be done for the company to succeed. To enhance employee alignment and motivation, 82 percent are focusing on consistent communications, and 81 percent are establishing realistic expectations for employee performance. Fifty-two percent of respondents are taking immediate steps to better allocate resources by deselection — focusing exclusively on initiatives that will be most profitable. In preparation for an improved business climate, 84 percent of middle-market business leaders have — or plan to — invest in new technology (58 percent and 26 percent, respectively). The Summer 2003 Survey of Middle- Market Business Leaders, with a special emphasis on how companies are positioning for an improved economy, is now available.To order a printed or .pdf version of the report, visit Grant Thornton’s Web site at www.grantthornton.com/blcsurvey. 22 • NORTHEAST PENNSYLVANIA BUSINESS JOURNAL • SEPTEMBER 2003
Congress seeks way to pay for Medicare overhaul By Robert Curran Following a federal budget surplus and then a record-breaking tax cut, companies, employees and retirees assumed the nation’s economy was on its way up. But in the last few years all of that has changed and the country now faces a projected $455 billion deficit this fiscal year, the government’s largest ever. The deficit is $150 billion higher than the initial estimate from the Bush administration, and companies are concerned about its impact on growth, jobs and taxes, and where the government will find the money to pay for the upsurge. Another big concern is the prescription drug program for seniors that the legislative and executive branches are working on,and President Bush’s plan to spend $400 billion to restructure Medicare with an emphasis on enrollment in private sector health organizations. The prescription drug proposal has become very complex, with proposals from both the House and Senate, and some members of Congress have termed it “bewildering.” Conferees are trying to work out compromises. Democrats are asking for more money and want the program run by the government, while Republicans are pushing to trim costs and want private sector involvement in the plan. Many economists have criticized the prescription drug overhaul, saying that only about 50 percent of seniors would actually realize any savings because of monthly premiums,out-of-pocket costs and high deductibles. Costs for many seniors, depending on their plans, could be in the $300 a month range.The conclusion is that many people may pay less by not enrolling and hope they’ll never need catastrophic coverage. Add the cost of a 44 percent increase in military spending and $1 billion a week for the occupation of Iraq, and questions are being raised as to where all of this money is going to come from. In regard to the pending Medicare prescription drug legislation, Dave Echevarria, assistant professor of business administration at Penn State’s Worthington Scranton Campus, had this to say about about the proposals: “The government is saying ‘it’s expensive and we’re trying to figure out ways so we don’t bankrupt the federal government.’” And who would pay for the surging costs for the big tax cut, the deficit and prescription reform? “The government will borrow from the public,” Echevarria said.“When the government borrows,it traditionally borrows from the insurance companies and retirement funds and private individuals who put money in short term treasuries. It’s coming from the marketplace.” As to what happened to the huge surplus, Echevarria said,“I’m not sure there really was a surplus.” He said that ever since the administration of Lyndon B. Johnson, the government decided to include Social Security revenues in with general tax revenues. The reasoning, he said, was to advance the Vietnam War and the Great Society programs, and that was why the government included the Social Security funds as part of its general revenue. “I’m not sure there was a surplus on the basis of taxes,”Echevarria said.“It was due largely to money that went into the Social Security fund.” Unchecked deficits could force interest rates up, but Echevarria said if there was no federal debt, interest rates would plummet. He added that if debts continue to rise too much, this would impede the federal government’s ability to fund programs. Echevarria sees the cost of the war in Iraq as a marginal increase in expenses as opposed to having forces stationed in the United States, and said the cost differences may not be much. There are economists who worry about deficits and economists who believe deficits are part of doing business. Echevarria agrees with the latter, up to a point, that point being when servicing the deficit requires higher taxes. With divergent points of view coming from the House and Senate and within the private sector, news of the economy tumbles regularly. One week the economic forecast is poor and lists higher unemployment, and the next week signs of a recovery are announced. The uncertainty itself has stunted consumer spending, and all sides keep looking for stability and better days to come. Synthes Spine Co. Pennsylvania Regional Tissue Bank Junior Achievement opens Peckville office Junior Achievement of Northeastern Pennsylvania Inc. (JA) recently celebrated the opening of its new office at 533 Main Street, Peckville. JA’s business and economics programs are for students in kindergarten through grade 12. JA enables caring adults to share their experience with students to show them what it takes to be successful. Visit JA’s Web site, nepa.ja.org, or call (570) 489-9474 for more information. Celebrating the Peckville office opening were, left to right: Sarah M. Kubrick, JA development assistant; Lisa M. Buranich, JA development director; Donna Sedor, Greater Wilkes-Barre Chamber of Business and Industry; Michael J. Pacyna, PNC Bank; Paul Barretta, Talent Clearinghouse, JA classroom volunteer; Ann Marie Andrejko, PNC Bank, JA board of directors; Gerald J. Ganz, Jr., Johnson College, JA board of directors; Kenneth G. Okrepkie, CDE Computer Learning Center, JA board of directors; Ellen P. Smith, JA board of directors; Janine M. Becker, Sallie Mae, JA board chair; Ronald J. Yevitz, Penn State Worthington Scranton, JA board of directors; Anna Cervenak, Verizon, JA board of directors; Chuck Matthews; Kathleen M. Matthews, JA president; Peter J. Danchak, PNC Bank president, JA advisory board; Brian Rinker, Blue Cross of NEPA, JA board of directors; Al Brogna, Sen. Robert Mellow’s office; Gary T. Crisci, Merrill Lynch, JA board of directors; Mary Gene Eagen, JA vice president, education; Robert N. Lettieri, MacIntyre Associates Inc.; Orna S. Clum, JA program director. BUILD WITH CONFIDENCE. BUILD WITH COSTANZO. Kane Properties New Distribution Center Aventis Pasteur Metzgar Building Make the right choice for your next construction project. L.R. Costanzo always utilizes value engineering, cost control, critical path scheduling and flexible work schedules so projects are completed on time and within budget. Companies throughout the area know that when they build with L.R. Costanzo, they build with confidence. Pocono Mountain Regional Police Department Marywood University New Student Residence View Our Selection of Completed Projects @ www.lrcostanzo.com 123 North Main Avenue, Scranton, PA 18504 570-346-8751 NORTHEAST PENNSYLVANIA BUSINESS JOURNAL • SEPTEMBER 2003 • 23
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Page 7 and 8: Tips for efficient debt collection
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Page 17 and 18: The ‘bang’ of broadband NORTHEA
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