Business Cycles

Another somewhat unexpected business cycle phenomenon has occurred in the early 2000s. It is what has come to be known as the "jobless recovery." According to the National Bureau of Economic Research's Business Cycle Dating Committee, in a late 2003 report, "the most recent economic peak occurred in March 2001, ending a record-long expansion that began in 1991. The most recent trough occurred in November 2001, inaugurating an expansion." The problem with the expansion has been that it has not included a rise in employment or real personal income, something seen in all previous recoveries.

The reasons for the jobless recovery are not fully understood but are the cause of much debate within the economic and political circles. Within this debate there are four leading explanations that analysts have given for the jobless recovery. According to a study published in Economic Perspectives in the summer of 2004, these four explanations are:

• An imbalance in labor available by sector.
• The emergence of just-in-time hiring practices.
• The rising cost of health care benefits.
• Rapidly increasing productivity not being off-set by aggregate demand.
• Only time and further analysis will show which of these factors, or which combination of factors explains the advent of a jobless recovery. Neil Shister, editorial director of the World Trade summarizes a discussion of the jobless recovery this way, "The culprit is ourselves. We have become dramatically more productive." This assessment suggests that much more will need to be understood about modern business cycles before we can again anticipate them and plan for their effects on the economy generally.

KEYS TO SUCCESSFUL BUSINESS CYCLE MANAGEMENT

Small business owners can take several steps to help ensure that their establishments weather business cycles with a minimum of uncertainty and damage. The concept of cycle management is earning adherents who agree that strategies that work at the bottom of a cycle need to be adopted as much as those which work at the top of a cycle. While there is no definitive formula for every company, the approaches generally emphasize a long-term view focused on a company's core strengths and stressing the need to plan with greater discretion at all times. Essentially, efforts are made to adjust a company's operations in such a manner that it maintains an even keel through the ups and downs of a business cycle.

Specific tips for managing business cycle downturns include the following:

• Flexibility—Having a flexible business plan allows for development times that span the entire cycle and includes various recession-resistant funding structures.
• Long-term Planning—Consultants encourage small businesses to adopt a moderate stance in their long-range forecasting.
• Attention to Customers—This can be an especially important factor for businesses seeking to emerge from an economic downturn. Maintaining close relations and open communication with customers is a tough discipline to maintain in good times, but it is especially crucial coming out of bad times. Customers are the best gauges of when a company is likely to begin recovering from an economic slowdown.
• Objectivity—Small business owners need to maintain a high level of objectivity when riding business cycles. Operational decisions based on hopes and desires rather than a sober examination of the facts can devastate a business, especially in economic down periods.
• Study—Timing any action for an upturn is tricky. The consequences of getting the timing wrong, of being early or late, can be serious. How, then, does a company strike the right balance between being early or late? Listening to economists, politicians, and media to get a sense of what is happening is useful. The best route, however, is to avoid trying to predict the upturn. Instead, listen to your customers and know your own response-time requirements.

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