10.10.20032003 Third Quarter Client Letter U.S. economy is on an upswing Commerce Secretary Don Evans recently stated “We (meaning the US Government) want to bring you a booming economy”. Their monetary and fiscal policies continue to prime the economy. As the chart on the right illustrates, the economy is definitely accelerating. In September alone, thirty-three thousand (33,000) temporary workers were hired. This is a leading indicator of future economic growth. As businesses begin to expand, they initially hire temporary labor instead of permanent labor. Temporary labor can be hired quickly with less long-term commitment from the company. If business continues to improve for these companies, they will convert the temporary labor into permanent labor. Corporate profits are rising from employee productivity increases and cheaper labor costs, another sign of recovery. During the 2nd calendar quarter, employee productivity increased 6.8% over the same period one year ago. Employee costs, corporation’s largest expense, are decreasing, because jobs are being moved overseas. In spite of the expanding economy, watch out for your job! Even though the US economy is growing, in aggregate it is not producing jobs. There were forty-one thousand (41,000) less jobs in the US during the June to September 2003 quarter. The largest 100 US companies, primarily in the manufacturing and technology sectors, are giving hundreds of thousands of jobs to Asia. The cost of labor in Asia is much cheaper than in the US. Two recent examples include Microsoft and Sprint. Microsoft gave its Windows operating system code to the Chinese to maintain. Locally, Sprint continues to outsource computer programming jobs to Asia. The US companies that do not utilize cheap Asian-labor will be at a severe disadvantage to the companies which have sent jobs to Asia. Many US-based manufacturing companies not utilizing the cheaper Asian labor are struggling to compete. If these companies can’t effectively compete, they will lose revenue to their cheaper competitors and lay-off additional US workers. In both scenarios, the US laborer suffers. During the past few years, the stock market couldn’t sustain its rallies. Upward trends in the market were followed by more severe stock market declines. However, since October 2002, the opposite has occurred. Recent stock market declines have been followed by strong buying. The economy takes many months to change course. This may indicate the beginning of many months of continued economic growth. Even though the economic picture is brighter with corporate profits and stock prices on the rise, portfolio allocations should be prepared for the unknown. Thank you for your continued trust and support! Trevor K. Holsinger, CFP