Social Media and Leadership Training Focus of July 27 Economic Perspectives

Building your business through social media and leadership development for African American and Hispanic managers and entrepreneurs will be the two topics of discussion on the July 27 Economic Perspectives.

Rachel Johnston

On the first half of Economic Perspectives, Austin entrepreneur Rachel Johnston will discuss the best strategies for enhancing small businesses through the use of Facebook, Twitter, LinkedIn, and other online social media tools.  Johnston, who is the owner of OperTuneUs, is sponsoring a social media training seminar for small businesses, Social Network with a Strategy, on July 30, 3 p.m. – 5:30 p.m.  Johnston has over 20 years technical experience working in computer and web technology including web design, internet strategy, and computer system design.  She has a B.S. in computer science from Central State University and is a certified project manager.

On the second half of Economic Perspectives, Belinda Matingou, president of the Austin chapter of the National Black MBA Association (NBMBAA) and Victor Alonzo, president of the Austin chapter of the National Society of Hispanic MBAs, will discuss the leadership training that will be provided for African American and Hsipanic managers, executives, students, and entrepreneurs at their annual Texas Leadership, Education, and Diversity Conference being held July 31, 7:30 a.m. – 5 p.m.  The conference will focus on developing leadership and branding skills and straegies for a fast changing economy.

Federal Reserve Chairman Testifies to Congress on U.S. Economic Condition

The following written testimony was provided by Federal Reserve Board of Governors Chairman Ben Bernanke to the U.S. House of Representatives Committee on Financial Services on July 21.

Chairman Frank, Ranking Member Bachus, and other members of the Committee, I am pleased to present the Federal Reserve’s semiannual Monetary Policy Report to the Congress.

Ben Bernanke

Economic and Financial Developments in the First Half of 2009
Aggressive policy actions taken around the world last fall may well have averted the collapse of the global financial system, an event that would have had extremely adverse and protracted consequences for the world economy. Even so, the financial shocks that hit the global economy in September and October were the worst since the 1930s, and they helped push the global economy into the deepest recession since World War II. The U.S. economy contracted sharply in the fourth quarter of last year and the first quarter of this year. More recently, the pace of decline appears to have slowed significantly, and final demand and production have shown tentative signs of stabilization. The labor market, however, has continued to weaken. Consumer price inflation, which fell to low levels late last year, remained subdued in the first six months of 2009.

To promote economic recovery and foster price stability, the Federal Open Market Committee (FOMC) last year brought its target for the federal funds rate to a historically low range of 0 to 1/4 percent, where it remains today. The FOMC anticipates that economic conditions are likely to warrant maintaining the federal funds rate at exceptionally low levels for an extended period.

At the time of our February report, financial markets at home and abroad were under intense strains, with equity prices at multiyear lows, risk spreads for private borrowers at very elevated levels, and some important financial markets essentially shut. Today, financial conditions remain stressed, and many households and businesses are finding credit difficult to obtain. Nevertheless, on net, the past few months have seen some notable improvements. For example, interest rate spreads in short-term money markets, such as the interbank market and the commercial paper market, have continued to narrow. The extreme risk aversion of last fall has eased somewhat, and investors are returning to private credit markets. Reflecting this greater investor receptivity, corporate bond issuance has been strong. Many markets are functioning more normally, with increased liquidity and lower bid-asked spreads. Equity prices, which hit a low point in March, have recovered to roughly their levels at the end of last year, and banks have raised significant amounts of new capital.

Many of the improvements in financial conditions can be traced, in part, to policy actions taken by the Federal Reserve to encourage the flow of credit. For example, the decline in interbank lending rates and spreads was facilitated by the actions of the Federal Reserve and other central banks to ensure that financial institutions have adequate access to short-term liquidity, which in turn has increased the stability of the banking system and the ability of banks to lend. Interest rates and spreads on commercial paper dropped significantly as a result of the backstop liquidity facilities that the Federal Reserve introduced last fall for that market. Our purchases of agency mortgage-backed securities and other longer-term assets have helped lower conforming fixed mortgage rates. And the Term Asset-Backed Securities Loan Facility (TALF), which was implemented this year, has helped restart the securitization markets for various classes of consumer and small business credit.

Earlier this year, the Federal Reserve and other federal banking regulatory agencies undertook the Supervisory Capital Assessment Program (SCAP), popularly known as the stress test, to determine the capital needs of the largest financial institutions. The results of the SCAP were reported in May, and they appeared to increase investor confidence in the U.S. banking system. Subsequently, the great majority of institutions that underwent the assessment have raised equity in public markets. And, on June 17, 10 of the largest U.S. bank holding companies–all but one of which participated in the SCAP–repaid a total of nearly $70 billion to the Treasury.

Better conditions in financial markets have been accompanied by some improvement in economic prospects. Consumer spending has been relatively stable so far this year, and the decline in housing activity appears to have moderated. Businesses have continued to cut capital spending and liquidate inventories, but the likely slowdown in the pace of inventory liquidation in coming quarters represents another factor that may support a turnaround in activity. Although the recession in the rest of the world led to a steep drop in the demand for U.S. exports, this drag on our economy also appears to be waning, as many of our trading partners are also seeing signs of stabilization.

Despite these positive signs, the rate of job loss remains high and the unemployment rate has continued its steep rise. Job insecurity, together with declines in home values and tight credit, is likely to limit gains in consumer spending. The possibility that the recent stabilization in household spending will prove transient is an important downside risk to the outlook.

In conjunction with the June FOMC meeting, Board members and Reserve Bank presidents prepared economic projections covering the years 2009 through 2011. FOMC participants generally expect that, after declining in the first half of this year, output will increase slightly over the remainder of 2009. The recovery is expected to be gradual in 2010, with some acceleration in activity in 2011. Although the unemployment rate is projected to peak at the end of this year, the projected declines in 2010 and 2011 would still leave unemployment well above FOMC participants’ views of the longer-run sustainable rate. All participants expect that inflation will be somewhat lower this year than in recent years, and most expect it to remain subdued over the next two years.

To read the rest of the testimony click here.

Making the Transition from Employee to Entrepreneur Focus of July 20 Economic Perspectives

Pamela Slim, author of Escape from Cubicle Nation: From Corporate Prisoner to Thriving Entrepreneur, will be the July 20 guest on Economic Perspectives.  Pamela’s book provides a wide variety of information for those dreaming about making the transition from employee to entrepreneur.  It covers not just the nuts and bolts of starting a business, but a full discussion of the emotional issues involved.

Pamela Slim spent a decade traveling all over the country as a self-employed trainer for large corporations. She was surprised to find that many of the most successful employees at these companies harbored secret dreams of breaking out to start their own business. They would pull her aside after a meeting and whisper, “I would love to work for myself, but have no idea how to get started. How did you do it?”

So Pamela started a blog—Escape from Cubicle Nation—to share her experience and advice. Soon, questions and stories poured in from corporate prisoners around the world. As her blog gained popularity, she also interviewed some of the brightest experts in entrepreneurship on topics from finance to branding to marketing via social networks.

Pamela’s expertise in personal and business exchange was developed through consulting for corporations such as Cisco Systems, Hewlett-Packard, and Charles Scwab.

Increased Equity and Venture Capital Funding Available For Small Businesses through SBA

From the press office of the U.S. Small Business Administration

Small businesses that would otherwise have difficulty securing private equity or venture capital may find funding easier to get as a result of changes made as part of the American Recovery and Reinvestment Act to the U.S. Small Business Administration’s Small Business Investment Company program.

“The Recovery Act expands SBA’s venture capital program to increase the pool of investment funding available to the Small Business Investment Companies licensed by SBA,” said SBA Administrator Karen G. Mills. “We believe those companies will be better equipped by these changes to help sustain and grow small businesses for their next important growth steps.”

Karen Mills

SBICs are privately owned and managed venture capital firms which are licensed and regulated by SBA. SBICs use a combination of funds raised from private sources and money raised through the use of SBA guarantees to make equity and mezzanine capital investments in small businesses. There are approximately 338 SBICs with $17.4 billion in capital under management.

The changes made as part of the Recovery Act are:

• The Recovery Act makes SBICs eligible for greater SBA guaranteed funding and requires SBICs to invest 25 percent of their investment dollars into “smaller” businesses. Also, the amount of funding an SBIC may invest in a single small business is set at 10 percent of an SBIC’s total capital rather than the previous limit of 20 percent of an SBIC’s private capital only. This translates to an effective 50 percent increase in funding available to a single business by an SBIC.
• Maximum SBA funding levels to SBICs will increase up to three times the private capital raised by the SBIC, up to a maximum of $150 million for single SBICs, or up to $225 million for multiple SBICs that are under common control. The cap for all licensees was set at $137.1 million before the Recovery Act.
• These limits are even higher for SBICs that are licensed after October 1, 2009, that certify that at least 50 percent of their investments will be made in small businesses located in low-income areas, up to $175 million for single licensees and up to $250 million for jointly controlled multiple licensees.
• Changes made to the SBIC program under the Recovery Act are permanent.

Industry associations have commended SBA for these changes and SBA continues to encourage new SBICs to apply for licensing and actively participate in the program.

The SBIC program was created to stimulate the growth of America’s small businesses by supplementing the long-term debt and private-equity capital available to them. Since the SBIC program’s formation in 1958 through April 2009, it has invested approximately $56 billion in more than 106,000 small businesses in the United States. For more information about the SBA’s Investment Division and SBIC program, go to www.sba.gov/INV or call 1-800-U ASK SBA.

Alternative Business Financing Focus of July 13 Economic Perspectives

Carlos Weil will discuss the alternative financing his company provides for small businesses on the July 13 edition of Economic Perspectives.  Weil is CEO of Capital Solutions Bancorp, a financial services company with operations in North America, South America, Europe and Asia.  TO LISTEN TO THIS INTERVIEW CLICK HERE: Carlos Weil Interview

Carlos Weil

Founded in 1996 by Weil and Paul Simko, Capital Solutions is an independent offshoot of a 43-year-old South American financial services firm. Capital Solutions focuses on providing flexible and affordable working capital to small and mid-size business that are looking to grow. The financial products provided by Capiatl Solutions include:

• Accounts Receivable Financing
• Purchase Order Financing
• Purchase Order Guaranty
• Financing to Purchase Businesses

The firm was established to offer reasonably-priced financing options for businesses that are frustrated by traditional banks that do not recognize their borrower’s ability to grow.

African Americans and Hispanics Have Lower Participation Rates in 401(k)Plans

The following was provided by the press office of Ariel Investments and Hewitt Associates.

Significant differences can be found across race and ethnicity in the way U.S. employees save and invest in their 401(k) plans, according to 401(k) Plans in Living Color: A Study of 401(k) Savings Disparities Across Racial and Ethnic Groups — The Ariel/Hewitt Study. This pioneering report — the largest, most comprehensive examination of 401(k) saving and investing behaviors of African-American, Hispanic, Asian and white employees — found that regardless of age or income, African-American and Hispanic workers have lower participation rates and contribute less to their 401(k) plans than their white and Asian counterparts. As a result, their 401(k) account balances are negatively impacted and chances for a comfortable retirement significantly compromised.

The Ariel/Hewitt Study analyzed 401(k) information for nearly 3 million employees across 57 large, primarily FORTUNE 500 companies in the U.S. It was conducted by the Ariel Education Initiative, the nonprofit affiliate of Ariel Investments, and Hewitt Associates, a global human resources consulting and outsourcing company. The Chicago Urban League, the Joint Center for Political and Economic Studies, the National Council of La Raza, the National Urban League, and The Raben Group also participated. The study was funded with a grant from The Rockefeller Foundation.

In response to the study, Mellody Hobson, president of Ariel Investments, remarked, “401(k) plans are now the primary way Americans save for their golden years. Most are unaware there are significant savings disparities in 401(k) plans across racial and ethnic groups. This study reveals important differences that must be addressed if retirement security is to be a reality for all Americans.

Mellody Hobson

The results of the study show that African-American and Hispanic workers are less likely than their Asian and white counterparts to participate in their 401(k) plans. Two-thirds (66 percent) of African-American employees and 65 percent of Hispanic employees participate in their company’s defined contribution plans, compared to 77 percent of white workers and 76 percent of Asian workers. Even after adjusting for factors such as age and income, the disparity remains.
Additionally, African-Americans and Hispanics contribute to their 401(k) plans at much lower levels than their white or Asian counterparts. Among those who save, white employees contributed 7.9 percent of income, compared to Hispanic and African-American workers, who contributed 6.3 percent and 6.0 percent, respectively. At 9.4 percent, Asian workers had the highest contribution rate of all groups.

Not surprisingly, lower participation and contribution rates lead to smaller average account balances for African-American and Hispanic workers. The Ariel/Hewitt study illustrates this point dramatically. For example, employees who earn between $30,000 and $59,999 show a significant difference in 401(k) account balances: African-Americans ($21,224), Hispanics ($22,017), Asians ($32,590), and whites ($35,551). This disparity exists even at higher pay levels. For instance, African-American employees who earn $120,000 or more have saved $154,902 in their 401(k) plans compared to $223,408 for white workers in the same pay range. While other factors influence account balances, the variation exists even after these adjustments.

In addition to participation and contribution rates, The Ariel/Hewitt study examined three other factors that can further impact an employee’s 401(k) plan balance — equity exposure, loans and withdrawals.

The findings revealed that African-American workers are less likely than Hispanics, whites and Asians to invest in equities. African-Americans had two-thirds (66 percent) of their 401(k) assets invested in the stock market. By comparison, whites and Asians had 72 percent and 73 percent, respectively, of their 401(k) plan assets invested in equities. Hispanics had 70 percent of their assets invested in equities. These findings are compelling because the stock market has historically outperformed all other investment options over the long term. It is generally understood among investment experts that employees with long-term time horizons should have a significant amount of their assets invested in equities.

Barbara Hogg

African-Americans are also more likely than the study population overall to have a loan and are more than twice as likely to take a hardship withdrawal from their 401(k) plans. Nearly two of every five African-American workers and almost a third of Hispanic workers borrowed from their retirement accounts compared to just one in five white workers. By contrast, Asian workers were the least likely to take a loan against their 401(k) plans, with less than one in five doing so. “These statistics are troubling because loans and withdrawals jeopardize long-term financial security to satisfy immediate needs. The impact is heightened during an economic downturn, when unemployment rises and withdrawals and loan defaults increase. We now realize this risk is magnified for African-American and Hispanic workers based on the results of our study,” said Barbara Hogg, principal at Hewitt Associates and co-leader of The Ariel/Hewitt Study.

“Without a significant effort to improve savings and investing behaviors, African-American and Hispanic workers are in danger of retiring into poverty,” states Hobson.

The Ariel/Hewitt Study outlines five decisive recommendations for policymakers and employers. These recommendations include:

• Encouraging employers to voluntarily collect and report 401(k) plan data by race and ethnicity. Knowledge is power, and collecting and reporting data about 401(k) plan participants would enable employers to know and manage where gaps exist among their workers.

• Modifying loan requirements to decrease the likelihood of default. Extending the amount of time a terminating employee has to pay off a loan may improve overall retirement savings, particularly during challenging economic times such as these. Other options could include allowing loan repayments after termination or exploring new options for allowing loans to roll over from one employer to another.

• Mandating financial education at all levels in both private and public schools to boost financial literacy. A financial literacy curriculum would provide generations of future employees a comprehensive understanding of both the mechanics and importance of sound money management, saving and investing.

• Designing 401(k) plans in a way that benefits a broad, diverse employee base. Features like automatic enrollment with high default contribution rates and periodic contribution increases can go a long way, effectively driving strong, robust participation across all demographics.

• Communicating and educating employees in a way that helps them make wise choices. Creating user-friendly and easily understood communication enables workers to learn more about how to effectively manage and grow their savings. This communication should incorporate different cultural perspectives that resonate with diverse groups of employees.

“By taking immediate action, employers, government and employees can make a big impact in helping all Americans achieve a comfortable standard of living in their retirement years,” concludes Hogg.

African American Unemployment Declines for 2nd Consecutive Month

The U.S. Bureau of Labor Statistics reported an African American unemployment rate of 14.7 percent in June in its Monthly Employment Situation Report, a decline from the May unemployment rate of 14.9 percent and the second consecutive drop in the monthly unemployment rate.  The African American unemployment rate during the recession reached its highest point in April with a 15.0 percent rate and 2,673,000 unemployed. Since then the number of unemployed African American has declined to 2,597,000.  Overall unemployment was 9.5 percent in June, a slight increase from 9.4 percent in May.  The number of unemployed was 14,729,000, an increase of  218,000 over May.

Since the recession began in December 2007, the African American unemployment rate has risen by 5.7 percentage points and the number of unemployed has increased by slightly over 1 million persons.   During this same time frame, the overall unemployment rate has risen by 4.6 percentages and the number of unemployed has increased by 7.2 million persons.

Industry Payroll Employment (Establishment Survey Data)

Total nonfarm payroll employment continued to decline in June (-467,000). Job losses from April to June averaged 436,000 per month, compared with losses averaging 670,000 per month from November to March.

Employment in manufacturing fell by 136,000 over the month and has declined by 1.9 million during the recession. Within the durable goods industry, motor vehicles and parts (-27,000), fabricated metal products (-18,000), computer and electronic products (-16,000), and
machinery (-14,000) continued to lose jobs in June. Since the recession began, employment in motor vehicles and parts has declined by 335,000, or about one-third.

In June, employment in construction fell by 79,000, with losses spread throughout the industry. Since the start of the recession, construction employment has fallen by 1.3 million. Mining employ-
ment fell by 8,000 in June, about in line with the average monthly decline since its recent peak in October 2008.

Employment in the professional and business services industry declined by 118,000 in June. This industry has shed 1.5 million jobs since an employment peak in December 2007. Within this sector, employment in temporary help services fell by 38,000 in June; this industry
has lost 848,000 jobs since the start of the recession.

Retail trade employment edged down in June (-21,000); job losses in retail trade have moderated in the past 3 months. Over the month, job losses continued in automobile dealerships (-9,000). Employment continued to fall in wholesale trade (-16,000).

In June, financial activities employment continued to decline (-27,000). Since the start of the recession, this industry has lost 489,000 jobs. In June, employment declined in credit intermediation and related activities (-10,000) and in securities, commodity contracts,
and investments (-6,000).

The information industry lost 21,000 jobs over the month and 187,000 since the start of the recession. Publishing accounted for about half of the employment decline in the information industry during the recession.

Health care employment increased by 21,000 in June. Job gains in health care have averaged 21,000 per month thus far in 2009, down from an average of 30,000 per month during 2008.

Employment in federal government fell by 49,000 in June, largely due to the layoff of work-
ers temporarily hired to prepare for Census 2010.

Innovative Strategies for Business Survival During Recession Focus of July 6 Economic Perspectives

Scott Anthony, author of The Silver Lining: An Innovative Playbook for Uncertain Times is the July 6 guest on Economic Perspectives on KAZI 88.7 FM.  TO LISTEN TO THIS INTERVIEW CLICK HERE: Scott Anthony Interview

In The Silver Lining Anthony argues that while the economic shock of 2008 constitutes the new normal, too many managers are slashing costs indiscriminately.  He says smart managers continue innovating during tough times by stopping ineffective initiatives, changing key business practices, and starting more productive behavior.  The result is the smart managers’ companies emerge from downturns stronger than ever.  Providing a wealth of ideas, tools, and examples from diverse industries, Anthony explains how to safeguard your company’s profitability even during the toughest recessions.

Anthony is President of Innosight, a management consulting firms focused on innovation. Anthony has worked with Fortune 500 and start-up companies in industries such as media (print and broadcast), consumer products, investment banking, transportation and logistics, healthcare, medical devices, software, petrochemicals, and communications equipment. In 2005-2006 he spearheaded a year-long project to help the newspaper industry grapple with industry transformation (Newspaper Next), and in 2003-2004 led a multi-month project to help the government of Singapore understand how to create an environment that fosters entrepreneurialism and innovation.