The Roemer Report September 1988

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The FED Intensifies it's Inflation Vigil

Economists both inside and outside the Federal Reserve Board have shown a growing concern that the U.S.economymaybe overheating. Infant, the Fed's recent move to increase the discount rate is a direct move to head off a resurgence in inflation. The central bankbelievesthateconomicexpansion in the 2% to 2.5% range is desirable for the non inflationary economic growth of our economy. Yet, our current projected annual rate is between 3.5% and 4%. There are several key inflation issues to keep your eye on. (1) Inflation and the Dollar.The Fed's hike in the discount rate signals that its chief priorities in this election year will remain a healthy domestic economy and inflation control. Two side effects of this renewed inflation will be higher interest rates and a stronger dollar. A higher dollar will retard hopes for reducing the trade deficit. (2) Will a New Wage Spiral Develop? The civilian unemployment rate is almost 2% lower than it was in 1987. The results of this year's union wage negotiations and the general availability of skilled labor are bothkeyinflationaryindicatorsthattheFediswatchingclosely.(3)Manufacturing Capacity.The capacity utilization for manufacturing industries is hovering around 83%. This rate is up 2% from1987.Some shortages in chemical and paper industries are occurring, but the manufacturing capacity utilization rate hasn't peaked during past cycles until it reached the 86% to 91%range.

FACING OUR TAX FUTURE: Just because nobody is saying the "T-word" doesn't mean that it isn't on everyone's mind. Although the presidential candidates are skillfully skirting talk of raising taxes, most analysts suspect that a hike is imminent. True, the gap between tax revenues and federal spending has narrowed in recent years. But the deficit in nextyeanr's budget seems destined to exceed the $146 billion limit set by the Gramm-Rudman-Hollings law. And risinginterestratesarelikelytoaddseveralbilliondollarstothecostoffinancing thenationaldebt.Thoseinthe knowcountat least four likely strategies for raising tax revenues by1990: (1)Energy and "sin" taxes. Estimates indicate that a hike in the gasoline tax could raise between $8 billion and $11 billion dollars per year. And, as the anti-smoking movement picks up steam, it seems probable that the government will increase-perhaps even double-the federal excise tax on cigarettes.(2)Anationalsalestax.Althoughsalestaxestypicallypinchmiddle­ and lower-income earners, a modified tax plan might exempt food and health­ care items...or apply only to luxury purchases. (3) "Dedicated" revenues.New spending programs could be financed largely by "user fees." For instance, companies that stand to profit from job retraining programs may be required to footpart ofthebill.(4)Ataxsurcharge. During the 1960s, the government levied a three-year tax surcharge to finance the Vietnam War and Johnson's Great Society programs. A similar plan might help pay off the federal debt.

BEHINDTHEINDUSTRIALCONSTRUCTIONOUTLOOK:Atlonglast,somesignsofmajorplant expansionarebeingseenwithintheU.S.manufacturingcommunity.Cautioustobesure,andnotacrossthe board,butreal.Infact,recentforecastsindicatenonresidentialfixed investmenttogrow 8.9%in1988vs. 1%in 1987. Outlays for buildings and equipment are expected to reach $490 billion-a record. Why now? ManyeconomistsfeelthattheU.S.isthelow-costlocationtomakehighvalue-addedgoods.Productivity and competitive labor rates are key. Political stability and built-in access to the world's richest market are otherreasons.ForeignmanufacturerscontinuetoexpandtheirU.S.presence.Increasingexportsandstrong internal demand are straining plant capacity levels. Profits are gaining. The bottom line is that manymanufacturersmustbegintoexpandorlosemarketsharetothosewhodo.Fearsofrecessionthatsnuffedout earlier comebacks are lessening. U.S. producers are in better shape to weather short-term setbacks. And more likely to see them coming in time. Good and improving news for the constructionindustry.


manufacturersregistereda4%growthinindustrialoutputlastyear.Severalfactorsarefuelingthisindustrial revival. For openers, the decline of the dollar makes U.S. products more attractive. Last year, U.S. manufacturersregistereda$30billionincreaseinexports.A$40billionimprovementisexpectedthisyear. Corporate restructurings have helped to reduce domestic operating costs 20% over the past five years. Exchange-rate-adjustedlaborcostsactuallyputsAmericanmanufacturingexpenseseciualorbelowthoseofmajor competitors like Japan, West Germany. and Britain.Quality improvements have made American products more cost-competitive and desirable. Increased growth will depend on corporations meeting a variety of challenges. Domestic organizations must become more aggressive and knowledgeable about globalmarketingwhilerecapturingAmericanmarkets.Morestepstostreamlineoperations,including just­in-time inventory and production, must be utilized. Niche marketing must be emphasized. And plant modernizationmustcontinue.Finally,there'sadefiniteroleforthefederalgovernmentinstimulatingafull­ pledged domestic manufacturing renaissance. It can assist by cutting the deficit, adopting sensible trade laws, and enacting no new taxes or trade laws that hamper globaltrading.

SERVICE SUCCESS IN THE REAL WORLD:Genuine customer service must be viewed as more than the "in" thing to do. Many companies have bombarded their employees with new programs, then allowed momentumtowitherasmanagemententhusiasmwanes.Wedon'tviewcustomerserviceasaprogram.It's a way of life. Your company grapevine can be unmercifully critical of programs that seemed destined for theboneyardsasmanagemententhusiasmandcommitmentdiminish.Andtheyoftendo! Customerservicemust beanunequivocalcommitmentradiatingfromseniormanagement andactuallybethenucleusofthecorporate culture.In our judgment, the creation of an authentic customer service culture requires some of the following elements: (1) Managers at all levels must get into the front end of the business and actually do front-line jobs several times a year. Roger N. Ervin, ServiceMaster V.P., explains that mopping and waxingfloorsbuildsempathyfortheworker.Itisinmakingyourfront-lineworkers'jobmoreproductive, andeasierthatyourealizecustomerserviceimprovements.(2)Bygenuinelyunderstandinghowyourpeoplereallywork.youcanhelpthemdotheirjobsbetter,morecomfortably.andwithgreaterquality.Forexample, ServiceMaster also developed its own mop handle to help employees. Conventional wood handles splintered,andmetaloneswerecoldtotouch.ServiceMasterfiberglasshandleswerestrongandwarm.The firmalsodevelopedacordlessvacuumthatistwiceasfastastheequipmentitreplaced.Thesecret:Service


SKILLS OF THOSE HIGH-PERFORMANCE SALESPEOPLE: Excellent salespeople share a com­ mon trait. They project complete confidence in themselves and their product. Less obvious but no less importantaretheirfinely-honed sensesoftimingandhumor...plustheirawarenessthatthecustomerseldom saysexactlywhathe/shewants.Whatotherskillsadduptoatop-flightsalesperson?Herearefiveessentials forsalessuccess:(1)Realizethatoldcustomersarethebestsourcesofnewbusiness.The80/20ruleapplies here: generally, 80% of your business comes from 20% of your customers. People you've satisfied once are likely to buy from you again...and provide new leads, as well. (2) Bring something new to each call. Nothing is more tiresome-and less effective-than the same old patter every time. Keep the deal moving byofferingsomethingnewateachmeeting.(3)Knowwhentobackpedal.There'satimeforpushingahead full throttle and a time for taking the pressure off. Customers are more receptive to salespeople who know the difference. (4) Remove objections gently. Super sellers didn't get that way by beating their customers,into submission. They recognize the value of subtlety and use it to help customers remove their own objections. (5) Make your enthusiasm infectious.A genuine passion for your product is bound to prove contagious...provided you work at it with the above points in mind.

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