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The Bureau's business advisory for 1991.

Last year, the Bureau's forecast highlighted the probable adverse effects of the consumer, business, and government debt situation. The second half of 1990 saw bankruptcies and loan delinquency rates begin to rise rapidly and spread through all sectors. Also, the slowdown has already begun to hurt many state and local governments'financial stability, and most will be facing painful belt-tightening measures.

Recent figures further illustrate the debt dilemma. It was reported that during the third quarter of 1990, debt interest payments by businesses reached a new postWWII high of 28.8 percent of cash flow. Expectations of subpar personal savings, falling real corporate profits, and squeezed governmental budgets make the outlook for unraveling this restrictive web of debt especially problematic during 1991.

In the face of a much deeper and prolonged recession, last year's axiom-surviving the slowdown (now, the recession) with effective debt management-will most likely ring even more true during 1991.

Here are some other axioms to consider in 1991:

First, keep close tab on inventories. Bloated inventories could quickly translate into a cash flow problem that would further aggravate a company's debt situation.

Second, justify capital spending projects based on their ability to significantly improve productivity and, thus, lower cost. Lenders are expected to tighten lending standards and to be overly sensitive to any hint of an assets/liabilities imbalance on a company's balance sheet.

Third, reinforce and continue to emphasize energy environmental conservation measures where feasible. During the decade of the 90s, efficient use of energy and sound environmental practices are going to be two of the key factors that are most likely to help improve productivity and help maintain America's global competitiveness.

Finally, a recent article in the Wall Street journal attributed a group of Japanese businessmen with unintentionally contributing our last axiom for 1991. In an ironic and uncanny sense, the japanese businessmen may have pinpointed the first axiom for economic survival for the entire decade of the 1990s.

The journal article described how Japanese businessmen currently view the shaky American economy. The operative question presented to the Japanese businessmen related to their fears concerning the aftershocks to the Japanese economy from a recession in the U.S.

As portrayed by the interviewer, the japanese, in their typically low-key, diplomatic manner, let it be known that the thou t it was presumptuous of the interviewer to imply that they had anything to fear from an American recession. They had already concluded that the American recession- necessarily be bad for the Japanese economy. In fact the prevailing consensus among the businessmen was that a depressed American economy presented a "golden opportunity to increase their company's market share in the U.S."

So, as the ever-darkening clouds of recession engulf the U.S. economy, it is going to be difficult to convince American consumers and businessmen that there could possibly be a silver lining.

With recessionary tendencies spreading throughout most of the global economy, America will increasingly be viewed as a safe harbor. Successfully weathering the coming recessionary storm should help strengthen the U.S. economy for the future.
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Title Annotation:Memphis State University's Bureau of Business and Economic Research
Author:Alvarado, Lew
Publication:Business Perspectives
Date:Dec 22, 1990
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