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Inward Investment Guides

Editor's Note: Regrouping During the Downturn

Geraldine Gambale, Editor, Area Development Magazine (Jun/Jul 08)
Remarkably, the economy is still growing - albeit by an anemic 0.9 percent in the first quarter of 2008, as reported by the Commerce Department in late May. This growth in GDP comes in spite of the nation's housing, credit, and financial woes.

Exports appear to be the driving force that is keeping the economy out of an official recession. The National Association of Manufacturers (NAM) reports that capital goods - including autos and auto parts - account for more than a third (34 percent) of total U.S. exports and nearly half (49 percent) of manufactured exports. NAM Chief Economist David Huether says that companies that expect to derive at least a quarter of their 2008 sales growth from exports "are more optimistic and expect to invest, grow, and hire more in 2008 than companies that are not globally engaged." This makes sense if one considers the growth in emerging markets and their need for new infrastructure, energy, and healthcare products and services.

Importantly, forecasters at the National Association for Business Economics predict the economy will continue to grow at a 0.4 percent rate once the numbers for the April-to-June period have been tallied. The second quarter should be the year's weakest, with growth picking up to 2.2 percent for the third quarter of 2008, spurred by the Fed's rate cuts and the federal government's tax rebates.

These predictions are bolstered by Chief Executive magazine's CEO Index, which stabilized in May after six months of declines. The index, which surveyed 334 top U.S. executives, registered 95.8 in May - just 0.6 points below the April results. More than 40 percent of those surveyed said they believe "the worst is happening now," i.e., the first half of 2008, and they were "managing through the downturn."

Nevertheless, almost half of the CEOs surveyed said employment will decrease in the third quarter of 2008. This may be because companies are still trying to produce more with fewer workers. Eventually, though, as the economy regains its health, those employment numbers will pick up; when they do, some experts are predicting a shortage of workers - especially those skilled in the occupations projected to grow the most in the coming decade, e.g., computer and communications technologies, and management, scientific, and consulting services. That's the warning from experts in Deloitte Consulting's Global Expansion Optimization practice, explained further in our cover story this month, "Where Has All My Labor Gone?"

Changing U.S. demographics - impacted by the impending retirement of 78 million baby-boomers - are altering corporate location and growth strategies as well as policy decisions at local economic development organizations. Those states and regions whose labor forces are projected to grow will be in a much better position to support economic growth and attract new and expanding facilities. And those companies that can satisfy the requirements of Gen Y, who will comprise the core of the labor force by 2020, will be able to attract and retain these workers.

Today's period of slow economic growth may be a good time for regrouping. So find out now why location may matter even more in the years ahead.

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