The Oregon Biz Report - Business News from Oregon

By Biz Reporter,

ShopLocal reports a 21% increase in Black Friday deals compared to 2007.  Stores are scrambling to get the most out of a drop in consumer spending and a diminishing economy.

Deals may be up, but freebies offered by stores appeared to be in decline in Oregon.  The Oregonian Black Friday advertisements show only one department store offering free gifts to the first customers compared to two to three stories in years prior.  In 2007, two sporting goods stores offered free gift cards ranging from $5 to $500 to the first 200 customers.  This year saw only one outlet (Joes) offering such free gift cards.

Best wishes and thankfulness from Oregon Report

BY AAA Oregon,

“Oregon?s gas prices are at their lowest level since March 2006. The statewide average for regular unleaded drops another 16 cents this week to $2.22. The national average falls another 15 cents to $2.07 and is at its lowest level since March 18, 2005.”AAA Oregon Public Affairs Director Marie Dodds says, “Both averages are about a dollar lower than they were a year ago, and are about 50% lower than the record highs of more than $4 a gallon we set in July.”

The national average for diesel also drops below $3 per gallon this week for the first time since September of last year. And Oregon?s average for diesel is just above $3 per gallon, also at the lowest point since September 2007.

By Alyssa Williams, Biz Reporter

With the recent announcement of Starbucks’ new evolution of card rewards that “takes the next step in putting money back in loyal customers’ wallets,” one may think Starbucks needs the money in its own back pocket after a 97 percent profit drop. However, Starbucks is one of many businesses to suffer severe reduced profits in the current economic crisis, and there is no evidence to conclude that these businesses cannot recover from the profit decrease.

Businesses from all sectors are beginning to feel the pinch of the poor economy.   For example, retail store J.C. Penny’s profits dropped 52 percent and the Cheesecake Factory Inc. dropped 36 percent in their third quarters.    More locally, the Oregon Shakespeare Festival announced they will cut back $1 million for its 2009 budget, one of the greatest financial crises in the history of the organization.

Starbucks rebound plan

By Bill Conerly, Businomics, Conerly Consulting LLC

A reporter called yesterday for a retrospective on my forecast of a year ago.  I groaned, thinking the headline would be “Gotcha!”  Be the actual quotes he had weren’t so bad.  Apparently I said that we had overbuilt housing and that it would take a couple of years at least to work off the excess supply.  Boy, that sounds right.

Confirming that is an interesting article from the Wall Street Journal’s Real Time Economics which says in 2005 there was a burst of stories about a housing bubble.  Here’s their chart, based on 50 major daily newspapers and how often stories refer to a housing or real estate bubble. (Hat tip to Arnold Kling at EconLog.)

Test your knowledge on what happened this week.

1. What economic index saw its largest single month fall since before World War II this week?
1) Consumer Confidence
2) Consumer Prices
3) Oil prices

2. Which Oregon museum announced 10% layoffs this week?
A) OMSI
B) Evergreen Aviation
C) Portland Art Museum
D) Oregon Zoo

From Oregon Petroleum Association,
PORTLAND, Ore.–(BUSINESS WIRE)–For Oregonians who use home heating oil, the struggling economy has delivered at least one bright spot: heating bills are dropping along with the temperatures.

Crude oil prices, which reached a record high of $145 a barrel in July, fell below $56 a barrel this week — a drop of more than 60% in four months. “Worldwide and domestic oil consumption has plummeted,” explained Molly Brady, President of the Oregon Petroleum Association. “Prices could keep dropping if a weak economy continues to dampen oil usage.”

By Moore Information,

As economic conditions have continued to worsen throughout 2008, voters have grown more concerned about protecting jobs than protecting the environment. Asked which issue they are more concerned about today, 65% of U.S. voters say they are more concerned about protecting jobs, while only 27% are more concerned about protecting the environment. This is a notable change from six months ago, when concern about jobs was higher than concern about the environment, but to a lesser degree than today. Further comparison to past data reflects a pattern of concern consistent with the economic ups and downs over the past three years, as reflected in the following table:

By Economist Dr. Eric Fruits, Econinternational

The BBC reports that the European Commission has scrapped rules that prevent oddly-sized or misshapen fruit and vegetables being sold in Europe. The EU’s agriculture commissioner called it “a new dawn for the curvy cucumber and the knobbly carrot.”

Proponents of the scrapped rules say they were introduced to ensure common EU standards.  Critics decried the rules as examples of Euro-madness.  If the rules were madness, then surely everyone would have voted to scrap the rules.  Instead, the BBC’s blog notes that that 16 countries–mainly the big fruit and vegetable producers–voted against scrapping the rules.

If the rules were such Euro-madness, why would 16 countries vote to continue the madness?

By Bill Conerly, Businomics, Conerly Consulting,

TARP is, of course, the Treasury plan to provide capital to banks.  There are terms of the deal described in the press and in official documents from the Treasury.  However, the deal is subject to any modification that Congress wants to make.  Section 5.3 says that Treasury may unilaterally change the terms of the deal to conform with laws passed by Congress.  This is a huge danger.

Back in the savings and loan crisis, Congress changed the terms of deals made between the government and banks.  The Supreme Court said that whenever Congress does that, the government may owe damages to the banks for violating the contracts.  (I was an expert witness in two of the damages lawsuits.)  This time round, it won’t be a violation of contract for the terms to be changed, because the contract says the terms are whatever Congress wants them to be.

Test you knowledge on these current affairs questions

1. Which Oregon County has moved to a four day work week?
A) Multnomah
B) Clackamas
C) Washington
D) Jackson

2. Researchers announced that ______ was a better indicator of premature death than traditional weight measurements.
A) Cholesterol level
B) Alcohol consumption rate
C) Blood pressure levels
D) Waist Size

By Allyssa Williams, BIZ Reporter.

A comprehensive citizens’ report detailing the root causes and basic problems of prostitution along Northeast 82nd Avenue should be released in early December, according to Dawn Rasmussen, president of the Save Northeast 82nd Avenue Coalition. The report would help guide businesses and neighborhoods in the area on how to effectively handle prostitution.

The plan, a brainchild from meetings uniting Northeast neighborhoods and featuring such panelists as City Commissioner Randy Leonard, President of the 82nd Avenue of Roses Business Association Ken Turner and Lila Lee from the Council for Prostitution Alternatives, will be the first aggressive attempt from the community to curb prostitution by addressing the core of the issue.

BIZ REPORT — Portland based Columbia Sportswear announced this month it is laying off 75 employees which is 4% of their workforce.  At the same time Columbia is opening a store at Portland International Airport and also at three other locations in Minneapolis, Seattle and Chicago.

President Tim Boyle stated, “We believe Columbia Sportswear has tremendous long-term growth opportunities.  However, our recently announced 11 percent decline in orders for spring 2009 and our expectation that U.S. market conditions will remain challenging through 2009, make it necessary for us to better align our planned spending with those realities.  We have approached this decision thoughtfully to ensure that we are able to continue investing in our expanding retail store platform and increased marketing.  Although difficult, we believe these actions will ultimately strengthen the company and position us well for when the economy recovers.”

By Phil Peach,
Oregon Remodelers Association,

There is still a lot of uncertainty about the future of the construction industry, and whether we are at the “bottom” of the economic downturn, how long the recovery will take, when new homebuilding will return and what effect that will have on the remodeling business.

Prospective remodeling customers are paying the price for the breakdown of the mortgage industry, in the form of tighter credit than ever. You have to have a pretty strong credit rating right now, or a lot of assets, in order to borrow funds to do a remodel. We are seeing more and more homeowners postponing their projects, downsizing them, or dividing them into smaller phases, a little at a time.

By Bill Conery, Businomics, Conerly Consulting,

Yesterday I explained the basics of a credit default swap.  Now let’s explain how they sunk AIG.  The obvious risk of the CDS is that the original bond issuer (Barb in the simple explanation) cannot repay her debt.  In AIG’s case, they did extensive computer modeling of this risk.  They felt pretty good about the risk.  However, there were two additional risks not considered in the computer models.  First, the CDS contract had provisions that could require the guarantor (like Sid in yesterday’s example, or like AIG in real life) to put up collateral.  That collateral would ensure that the guarantee would be solid.  AIG received several calls for collateral from its counter-parties.  That placed a significant burden on its balance sheet.

Test your knowledge on events that happened this week.

1. NBA coaches this week agreed to…
A) Wear designated clothing brands during games as a promotion
B) Hire a law firm to sue referees for repeated errors
C) Ban the use of non-recycled cups at courtside

2. Which Governor was not cleared in a criminal investigation this week?
A) Eliot Spencer, New York (former)
B) Jim Gibbons, Nevada
C) Rod R. Blagojevich, Illinois

From Oregon Small Business Administration,

Manuel Castaneda , president of Pro Landscape,Inc., is the Oregon Minority Small Business Person of the Year for 2008 announced SBA Portland District Director Harry DeWolf. The award was presented at the Minority Business Opportunity Committee’s (MBOC) Minority Enterprise Development (MED) Week awards luncheon on Wednesday, October 1, 2008, at the Oregon Convention Center, 777 NE Martin Luther King Jr. Blvd. in Portland, Oregon.

From Oregon State University College of Business,

CORVALLIS, Ore. -A new study by Oregon State University researchers shows that promoting the fact that the business is a “family” business positively influences customer purchasing decisions.  Family businesses are important to the United States economy, comprising an estimated 80 percent of the 15 million businesses in the U.S. They contribute to more than 50 percent of America’s gross domestic product, and generate 78 percent of new jobs in the economy.

The study was published in the most recent issue of the Journal of Small Business Management, a leading scholarly journal for entrepreneurship.

Oregon Biz Report,
Starbucks has been running TV ads and web videos giving free coffee to anyone who says they voted on election day.  Krispy Creme offered free doughnuts and Ben and Jerry’s free ice cream.  But it may be illegal in many places. The Secretary of State in Georgia issued a letter stating clearly that offering any form of gifts for one’s vote is a felony.  Lawyers in Oregon say the same rule applies.   Just as candidates cannot give away campaign t-shirts, coffee mugs and pens, so too businesses cannot give away objects of value in exchange for voting.

Bill Conerly, Businomics, Conerly Consulting LLC

With today’s new GDP figures for Q3, I’ve updated my forecast.  Here’s how it looks:

GDP forecast

That last blue column, the slightly negative one, is last quarter’s 0.3% decline.  I forecast declines in the current quarter as well as the first quarter of next year.

What will get the economy growing again?  That’s the most common question I’m getting in my many speeches this fall.  We have three problems:  1) too many houses, 2) credit crunch, and 3) weak attitudes among consumers and businesses.  Problem #1 won’t be solved until we have another year of population growth.  Problem #2 is being addressed by aggressive Fed and Treasury policy; I expect it to get solved (see qualification below) in six weeks or so.  Problem #3 will be resolved by the many, many people who do not lose their jobs.  Right now they are staying away from stores, but after a few months, they’ll have paid down credit card balances, or they will have built up their bank accounts.  They will say, “We’ve avoided job loss in this recession, and we have money, so let’s spend.”  That happens in the spring.

The Fed starts draining liquidity from the banking system after six months of improvement, then they have to start raising rates quite dramatically to avoid inflation.  Current policy is not inflationary in the current environment (credit crunch and weak attitudes), but it will be inflationary if left in place as credit and attitudes improve.  Thus, look for a sharp tightening beginning in late 2009.

RM forecast

The current policy actions may not prove inflationary, but it will take a very deft touch on the monetary helm.  The odds of over-steering or under-steering are very high, so I’m anticipating a more cyclical economy in the coming years than we’ve had in the past few years.

Qualification on the credit crunch:  When I say that the credit crunch will soon be over, I mean that profitable businesses and prudent consumers will be able to get credit.  I don’t mean that credit spreads will be as narrow as historical averages, nor do I mean that much real estate development credit will be granted, nor that any sub-prime borrowers will get loans.