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From
the Publisher GeoTechnologies and the Recession "Business Economists Confident of Recovery," "GDP Grew 1.7 Percent in March," "Construction Spending Rose in February," "U.S. Growth Revised Upward," "Jump in Spending Suggests Robust Recovery," "Factories Post Second Month of Growth," "Personal Income, Buying Climb." This is but a small sample of the headlines that have permeated the media in recent weeks. Optimism among forecasters has increased, with a focus on economic indicators that show some improvement in our economy. Many of these forecasters proclaim that the recession is over; a few even wonder whether one truly existed. This "recession" could be described as schizophrenic, creating pockets of prosperity for some and economic hardship for others. At this stage, the GeoTechnologies have weathered the economic downturn fairly well. However, one of the challenges in analyzing an economic cycle is identifying exactly where one sits within that cycle: whether at the front, in the middle, or at the tail end. I’ve heard some describe our economy as a giant snake, with the recession playing the metaphoric role of a watermelon that was swallowed, is working its way through the serpent, and will eventually disappear. Some industry experts posit that we lag behind the general economy and have yet to feel the effects of this recession. Others say that the watermelon has already dissipated and the effects of the recession were negligible. Sustained economic improvement depends upon business investment and sales, employment growth, and the willingness of consumers to keep on spending. The hope is that the momentum from consumers and government, two powerful economic engines, will restart business investment and speed up recovery. The danger, however, is that both may falter before the economy picks up sufficient speed to proceed on its own. A sharp rise in federal spending may have helped ease the recession and reinforce signs of just such a recovery. In January and February 2002, U.S. construction spending surged at its fastest rate in over a year. Spending on public construction soared 3.7 percent as the government funneled money toward new schools and highway projects, and surprisingly, the states and cities found ways to sustain their spending. However, this is likely to give way as previously mandated budget cuts go into effect for fiscal year 2003. Squeezed by the worst budget crunch in nearly a decade, states are scrambling to cut spending, avoid raising taxes, and spare education in the process. The bleak economy has been hurting tax revenue for months as a growing number of states take in far less money than their budgets expected. According to one survey, 35 states face a total budget shortfall of more than $25 billion for this fiscal year, the worst since 1992. Another lingering concern as the economy slumped involved bankruptcy filings, which broke an all-time record last year and were notable not merely for their quantity, but also for their size. In 2001, no fewer than 10 Fortune 500 companies and 22 Fortune 1000 companies filed for protection from creditors. When big companies file for bankruptcy, there is a huge ripple effect felt by smaller companies that provide supplies and services to those companies, as well as by the corporation’s employees. Because the latency of relatively recent filings by such big firms as Enron and Kmart has not yet been factored, many experts believe this rise in bankruptcies is far from over. Meanwhile, the Bush Administration is trying to trim spending in many domestic programs to pay for big increases in defense and homeland security. It has proposed a budget plan for the year, beginning on October 1, 2002, that likely works against an economic recovery and offers potentially negative consequences for the mapping industry. This budget provides $22.6 billion for the Federal Highway Administration-the agency in charge of road construction-down sharply from $32.1 billion this year. In an effort to offset a landslide, lawmakers in both the House and the Senate introduced legislation to restore highway construction funds in the administration’s budget, claiming that these proposed cuts would mean the loss of tens of thousands of jobs. It is estimated that $1 billion spent on highways creates 40,000 jobs. Lawmakers said that the president’s budget would result in a loss of 26,000 jobs in California, 22,000 jobs in Texas, and 15,000 jobs in Pennsylvania. These bills would restore approximately $4.4 billion in highway spending, less than half of what had been cut. However, an owner of a leading mapping company in the U.S. told me that he heard first-hand from House Transportation Committee Chairman Don Young (R-Alaska) that, "most, if not all, of what had been cut will be restored." Of course, this assumes ratification of the budget, which is not a foregone conclusion. No one can say for certain what these economic figures and trends portend for our industry. Over the past few weeks I informally surveyed several industry leaders, none of whom wished to be identified by name, and following is a synthesis of their prognostications. Publisher’s note: This editorial is continued on the EOM Web site at: www.eomonline.com. I apologize for the inconvenience. However, every month, in trying to cut my editorial to 800 words or less, a great deal of what I would like to say ends up "on the cutting room floor." There are some of you who probably prefer it that way. But, for the rest of you, the remainder of this editorial can be read on the web. Thank you for your patience and consideration. Until next time... Cheers!
Roland Mangold |