This week's highlights...

1. From Table 10 in today's BEA report on Personal Income, real disposable income increased 2.2% in February, compared to February last year. This is the 5th consecutive month of positive growth in real personal income compared to the same month in the previous year, following negative growth in August and September of last year. The 2.2% increase in real disposable income is just slightly below the 2.3% average over the last four years.
   
   
2. Rates on 30-year mortgages plunged this week to the lowest level on record after the Federal Reserve launched a new effort to assist the staggering U.S. housing market. Mortgage finance giant Freddie Mac said Thursday that average rates on 30-year fixed-rate mortgages dropped to 4.85% this week, from 4.98% last week. It was the lowest in the history of Freddie Mac's survey, which dates back to 1971. FYI -- in the 1981-1982 recession, mortgage rates peaked at about 18.5% in October 1981. The difference in monthly payments on a $100,000 mortgage at 18.5% ($1548) and a mortgage at today's 4.85% ($528) is more than $1,000 per month!
   
   
3. The National Association of Realtors (NAR) released its latest Housing Affordability Index (HAI) today, showing that housing affordability reached an all-time, historic record high of 173.5 in February. A HAI of 173.5 would mean that the typical household earning the median family annual income of $59,726 in February would have 173.5% of the qualifying income to purchase a median-priced existing single-family house ($164,600) with a 20% down payment, which would be the highest level of housing affordability since the NAR started reporting housing affordability in 1971.
   
   
4. This week we are seeing some further positive notes in form of better-than-expected new and existing homes sales and durable goods orders for the month of February. These, and other positive, or even “less bad”, signs are a welcome change of tune.

Outraged over AIG bonuses?

If so, click here.

Valuable data tool available

GeoFRED™ is a data-mapping tool that displays color-coded data on the state, MSA and county levels. For example, GeoFRED can display unemployment, labor force and population for all U.S. counties. Users can select among 19,000 FRED® data series and customize these printable maps according to size, scope and detail. Those seeking to get a better handles on their local trade area will find this tool useful.

HT: NY Times Economix Blog

Parable of "The Man Who Sold Hot Dogs"

There was a man who lived by the side of the road and sold hot dogs.
He was hard of hearing so he had no radio.
He had trouble with his eyes so he read no newspapers.
But he sold good hot dogs.

He put up signs on the highway telling how good they were.
He stood on the side of the road and cried; "buy a hot dog, mister?
And people bought.

He increased his meat and bun orders.
He bought a bigger stove to take care of his trade.
He finally got his son home from college to help him out.

But then something happened.

His son said, "Father, haven't you been listening to the radio?
Haven't you been reading the newspapers?
There's a big depression.
The European situation is terrible.
The domestic situation is worse."

Where upon the father thought, "well, my son's been to college, he reads the papers and he listens to the radio, and he ought to know."

So the father cut down on his meat and bun orders, took down his advertising signs, and no longer bothered to stand out on the highway to sell his hot dogs.

And his hot dog sales fell almost overnight.
"You're right, son" the father said to the boy.
"We certainly are in the middle of a great depression."

Hat Tip (HT) to Neil Mattson for the link.

Signs of vibrancy

Now, after months of seemingly nonstop bad news, there are hopeful signs on the horizon. Below the surface of gloom, there are signs of a new vibrancy. They include:

• A broad rally in stocks, confirmed last Thursday, continuing into this week and led by the beaten-down financials.
• A surprising 22% surge in February housing starts to a seasonally adjusted annual rate of 583,000 units.
• A back-to-back jump in retail sales ex autos, in both January and February.
• A return to profitability at several major banks, including Citigroup, Bank of America and JPMorgan.
• A doubling in the obscure but important Baltic Dry Index, a key indicator of global trade flows.
• An upwardly sloping yield curve, which Fed research suggests all but ensures a rebound by year-end.
• A Housing Affordability Index that has hit an all-time high.
• A two-month improvement in wholesale used-car prices, measured by the Manheim Index.
• A rise in Monster's Employment Index in February, suggesting a turn in the job market may be around the corner.
• A 4 1/2-year high in the dollar against other major currencies, on a trade-weighted basis.
• A sharp increase in the money supply, as measured by M2 and M1. Weekly M2 growth has averaged 10.1% year-over-year since the start of 2009, while M1 has grown at a 14.6% rate.
• A two-month rally in the Index of Leading Indicators.
• A growing body of evidence that the "liquidity crunch" is dead. Data show nearly $14 trillion in liquidity on the sidelines of the markets, ready to boost consumer spending, credit growth or further stock market gains.

Data Source: IBD Editorial

A quality mindset

My sister is a quality control guru. She recently started a new blog on the subject, which I thought insightful, so I am sharing her first post with Making Cents readers. See below.

I believe that for companies to succeed now and in the future, organizations need to focus on quality management principles. So what are characteristics of a company focused on quality? A good question and I’m glad you asked. :-)

These companies will have the following:

1) A total commitment to continually increasing their value to customers, investor and even their employees.

2) An understanding that market driven is quality defined by the customer not the company

3) Commitment to continuous improvement and communication

4) Understanding that sustained growth requires success of four key factors: a) customer satisfaction, b) cost leadership, c) effective human resources, d) competent supply base

5) Commitment to improvement through knowledge, skills, problem solving and teamwork!

Typically, if the above is part of a company’s culture, the accounting metrics will fall into place. One thing that you notice is the mention of “customer” in several of these. Unfortunately and not always accurately, the assumption is that the customer also has these same principles and acts accordingly. As we all know from experience, this is not always the case, so we have to also take this into account when trying to determine and define what customers value.

The second thing that you might notice is the mention of the need for improving. Every move toward a global marketplace (from local to regional to national and ultimately to world markets) increases the level of competitiveness between organizations. As we continue to compete globally and the players in the global market increases, there will always be a need to improve because there will always be another organization out there trying to outdo or outmaneuver us. We should never get caught thinking that being close to perfect is good enough.

BB Blues...

Nothing like being on vacation in a remote area of Texas to remind me of the woeful cellular coverage of my Blackberry 8800 (AT&T). Actually, it's more of a reminder of my addiction to technology, but that's another matter altogether.

Back to my original point. My wife's freebie cellular phone consistently puts my BB to shame, getting 3-4 more strength-of-signal bars, even at home. I'd be curious if anyone has found a work-around or fix (to my coverage problem, not my addiction). I wonder if the new BB Bold performs better? Surgical implantation of rabbit ears?

Comments welcome as usual.

Housing Affordability at Record High

OK, I am on vacation but blogging counts as relaxation, right?

The National Association of Realtors (NAR) recently released its latest Housing Affordability Index (HAI), showing that housing affordability reached an all-time, historic record high of 166.8 in January (see chart above). A HAI of 166.8 would mean that the typical household earning the median family income of $59,821 in January would have 166.8% of the qualifying income to purchase a median-priced existing single-family house ($169,900) with a 20% down payment, which would be the highest level of housing affordability since the NAR started reporting housing affordability in 1971 (see chart below).

Since mid-2006, the HAI has risen by more than 67 points, from 99.6 in July 2006 to 168.8. Stated differently, the annual qualifying income required to purchase a median-price house (with a 20% down payment) is only $35,856, with monthly payments based on a 5.21%, 30-year fixed-rate mortgage ($747.19 per month for principal and interest). Given the median family income of about $59,821, the typical family would have 166.8% of the income required to qualify for the mortgage to purchase the $169,900 home.

The historic surge in housing affordability to a new record-high will play an important role in the real estate market's recovery. Interestingly, the record-high level of housing affordability over the last several months has gone almost unreported by the media. The media seems trigger happy in its coverage of every possible bit of bad news about the real estate market and economy in general, but never covers some of the obvious, "mustard seed" signs of economic recovery, like record high housing affordability.

A better week for stocks and, hopefully, confidence.

A week of gains, and not small ones either. The question on people's mind now is what's behind the rise and will it last.

Much of the rally appears to have been driven by activity in the drugs sector. A flurry of mergers this week sparked gains that overcame downward momentum in energy. Also, a few of the big banks came out and said they actually made money in the first two months of the year.

Now, making a few million bucks at the very start of the year after being rescued by government billions isn't exactly a signal that all is well with the financials, but after the battering suffered by the likes of Citigroup Inc. (C), Bank of America Corp. (BAC) and Morgan Stanley (MS), it is apparently enough to spur some buying. As to whether the rally will last or merely sets the stage for a new leg lower, stay tuned.

The Dow Jones Industrial Average (DJIA) rose 53.92 points or 0.8% on Friday to close at 7,223.98. For the week the index was up 9%. The Nasdaq Composite Index (COMP) added 5.4 points or 0.4% to close at 1,431.50 on Friday, a 10.6% gain for the week. The broader S&P 500 Index (SPX) rose 5.81 points or 0.8% to close at 756.55 on Friday. The index's gain for the week came to 10.7%.

Maybe the market trend will continue into next week. Hopefully, the combo of rain this week in the South and temps in the 70's next week will kick start the season into high gear.

Weather and retail sales report

Despite the economy going into a tail spin, retail industry same-store sales were on the high side of expectations (-0.1% vs expectations of -1% to -2%) and in many cases exceeded expectations, especially Wal-Mart which blew away it's own expectations with a +5.1% gain.

There was some discussion that lower gasoline prices helped the industry but an analysis reveals that's most likely not the reason for the stronger gains. As the chart below shows, gasoline prices have steadily risen by $0.27 gallon from December to February so that certainly didn't help boost disposable income. Unemployment went from 7.2% to 8.1% so that didn't help retailers any. So what was difference from the earlier Winter months when retail sales were the worst in decades to the better February? MUCH BETTER WEATHER!

In December we had a slew of negatives for retailers with the coldest conditions in 8 years, 2nd wettest in 16+ years and snowiest in 20+ years with the snowiest week prior to Christmas in over 100 years resulting in the worst retail sales ever despite easy comparisons to a year ago. Yet unemployment was lower than February and gas prices much lower than February so it was all about the weather creating the PERFECT STORM for the abysmal industry results.

Then came January which had a few more positives but cold and snow was still extreme and despite worse unemployment, higher gas prices retail sales were not as bad December and higher than expected.

Then there's February - much worse unemployment, worst stock market plunge since the Depression, $0.27 gallon higher gas prices than December and very tough comparisons to a year ago retail sales, yet the industry comes in much higher than expected? Why? Maybe consumers felt a bit of Spring in the air with 1,581 new record high temperatures, warmest February in 4 years, least snow in 7 years and driest in 13 years? All very favorable trends for higher store traffic and higher retail sales. Click on chart below to enlarge.

Companies change strategies for different reasons

Companies change strategies for a host of reasons, external (broad economic changes, competitors' moves) and internal (the results of a strategic planning process). But two reasons stand out, a recent McKinsey survey of global executives found. Each executive was asked what drove the largest strategic initiative in his or her company during the previous fiscal year, excluding strategic shifts made in response to a competitor's move or to the current economic turmoil. Two drivers together accounted for more than half the moves: a major product innovation (31%) and entering a new market segment (22%). Click on the graph above to enlarge.

Supply and demand do work

The current political stampede to stop mortgage foreclosures proceeds as if foreclosures are just something that strikes people like a bolt of lightning from the blue-- and as if the people facing foreclosures are the only people that matter.

What if the foreclosures are not stopped? Will millions of homes just sit empty? Or will new people move into those homes, now selling for lower prices-- prices perhaps more within the means of the new occupants?

The same politicians who have been talking about a need for "affordable housing" for years are now suddenly alarmed that home prices are falling. How can housing become more affordable unless prices fall?

The political meaning of "affordable housing" is housing that is made more affordable by politicians intervening to create government subsidies, rent control or other gimmicks for which politicians can take credit. Affordable housing produced by market forces provides no benefit to politicians and has no attraction for them.

In the wake of the housing debacle in California, more people are buying less expensive homes, making bigger down payments, and staying away from "creative" and risky financing (see chart above). It is amazing how fast people learn when they are not insulated from the consequences of their decisions.

~Thomas Sowell's latest column "Subsidizing Bad Decisions"

The Crisis of Credit

The Crisis of Credit Visualized from Jonathan Jarvis on Vimeo.

Jonathan Jarvis' animation of the credit crisis is one of the best explanations I've seen yet. It's not perfect, but provides an excellent overview. Be patient though -- while it's only about 11 minutes long, it takes a few seconds to load, but is worth the wait.

Everybody has an off day

My recent trip to Colorado (that I alluded to in my earlier post) started off under rather unusual circumstances. A normally short, 5-minute check-in process in the College Station airport turned into a half-hour-plus study in human behavior.

One airline ticket counter employee was having a particularly difficult time checking in a lady and her happy-go-lucky, bouncing young puppy dog who obviously had no idea what it had in store over the next several hours. The other ticker counter employee was handing the rest of us by herself and was doing an admirable job, IMHO, given that numerous folks attempted to take extra bags on the plane for free, or tried to carry on dresser-sized bags that obviously contained their entire wardrobe, or argued about the "size of liquids" rules, or were simply rude about having to wait a little longer than normal.

But the most interesting part of the entire debacle was seeing the various reactions of the folks in line and then hearing their (rather loud) account of the episode on the plane afterward.

You see, I happen to know the ticket counter lady who was handling the bulk of the folks standing in line and not only is she an incredibly nice and funny lady, but she has won numerous awards from the airline for her record of outstanding customer service that often goes way beyond the call of duty.

But if you had heard these folks that were discussing her performance on the plane afterward, you would have thought she was a incompetent, bumbling, ignorant rookie (and I am cleaning up their language significantly).

So I said to myself..... Self, there must be something to learn from all of this. So I started a list on my ticket stub:

1. No matter how good you are, someone will always think that you can do better.
2. You can't please all of the people all of the time, so 100% satisfaction is probably a fallacy.
3. Some customers need firing. They simply are not worth the hassle of doing business with them.
4. A smile and a calm tone really is effective at reducing the sting of irate customers.
5. Taking the high road is always the best route.
6. You can't train personality, but training can sure compensate for the lack of it.
7. And lastly, pets shouldn't fly.

I'm sure you can probably add to this list yourself. Feel free to do so in a comment!

By the way, when I interjected to the folks on the plane that my friend, the ticket counter lady, was an award-winning employee recognized numerous times for her outstanding customer service, they found a new target and I found myself practicing number 4 above!

Man, was I ready for 12,000 feet!

The View From 12,000 Feet

Over the weekend, I took a rare opportunity to explore the mountains of Colorado with 6 of my good buddies from church. Needless to say, the mountaintop views were spectacular and provided some needed respite from the hectic trade show and educational conference season.

Not only was it a great reminder of the majesty of creation but it afforded me a few thoughts about the importance of taking a step back and seeing the big picture.

During several of my speaking engagements over the last few months, folks have related some pretty amazing stories regarding their individual business circumstances. Some good and some, well, not so good. In asking probing follow-up questions (you can tell I like to watch Charlie Rose), it seems to me that those who are optimistic about the upcoming spring season have a good strategic game plan firmly set in place. They have planned their work and are ready to work their plan.

In that vein, I think it is important each morning to take 2 minutes, step back, and allow yourself to take in the view from 12,000 feet. In other words, create a list of the top three things that are important to accomplish that day and focus on that list. Write them down and keep the list somewhere close all during the day.

Take the free moments in your day to check on your list, not to hurriedly check your email inbox. Most "urgent" items can wait while you take the time you need to focus on these vital projects. Delegate the tasks of putting out fires to those whom you have empowered to do so.

I know this seems terribly simplistic, but I myself find that the "tyranny of the urgent" can cause me to take my eyes off the ball. It's during those times, the 12,000 view can be most refreshing and re-directing!

Shine in '09

In this post, I am announcing a new webinar series that is designed to assist green industry firms in making better (more informed) managerial decisions in the midst of an economic downturn that is turning markets upside down. In this hypercompetitive market, the competitive advantages you enjoy today may vanish with breathtaking speed, and in this type of environment, the things you don't know can hurt you!

You may be saying to yourself: "I don't have time and can't afford to attend another meeting." That's the beauty of a webinar - it only takes 45 minutes out of your day; you don't have to spend money traveling anywhere; and you can 'attend' sitting in front of your own computer! Ask yourself these questions…

• Are business profits shrinking and you're not sure why?
• Are you uncertain how sustainability can help your business?
• Has marketing become more of a challenge?
• Has your business been impacted by the economic downturn?
• Are operating costs spiraling out of control?

If you answered yes to any of these questions; if you feel the business climate continues to deteriorate; and if you are worried about the future of your business, then attend this webinar series and learn useful strategies to increase your firm's bottom line!

March 9, 2009 -- 11:00 a.m. CDT

Webinar 1 Topic: Action Points to Survive the Downturn
Dr. Charlie Hall, Texas A&M University
Developing and fine-tuning your downturn strategies to ensure your business will survive!

April 14, 2009 - 11:00 a.m. CDT

Webinar 2 Topic: Differentiating By Being Sustainable
Dr. Don Wilkerson, Texas A&M AgriLife Extension
Being proactive by developing your own sustainability code of ethics can help set you apart from the competition!

May 12, 2009 - 11:00 a.m. CDT

Webinar Topic 3: Marketing Green!
Dr. Jennifer Dennis, Purdue University
The "green" marketing strategies you need to thrive in a maturing marketplace!

If all of this sounds interesting, click here to register! And, and one more thing, there's no charge for this webinar series, thanks to our great sponsors!