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Issue 03:08:01

Industry Update

Global Payments Must Continue Processing for Troubled Air Canada

WesPay's Symposium 2003 Scheduled for September

Certegy to Process E-Checks at


New Applications Offer Greater Opportunity
By Michelle Graff


White Paper
Decimalization Table Attacks for PIN Cracking
By Eric Thomson

Checking in with Nonprofits
By Eli Kimels


Street SmartsSMTaking the Lead
By Ed Freedman

Do You Know Whom You Are Hiring?
By David H. Press

Company Profiles

GlobalTech Leasing, Inc.

New Products

American Express Expands Contactless Pilot

MagStripe Reader for Palm Handhelds


Keeping an Eye on the News

YOU Are the Difference



Resource Guide


The Recession's Over ... Now What?

It's official: The recession is over. You know, the one that began about two-and-a-half years ago and has been a main topic of conversation all over the place for nearly 29 months? The announcement has left a lot of people puzzled-the most common response being, "Huh?"

The most confusing part of the good news is that the recession ended in November 2001.


The U.S. economic recession that began in March 2001 ended eight months later, according to the National Bureau of Economic Research (NBER), a private, nonprofit economic research organization, in an announcement made July 17, 2003.

Many argue economics is driven as much by perception as it is by numbers, so if you ask any of the millions of unemployed in the country whether or not they think the recession is over, you will undoubtedly get an earful about how well the economy is working for them.

You don't have to be unemployed to feel the pinch. Other economic factors also have an impact on our views and actions-the way we vote, or the way we save (or don't save) money. When we think things are gloomy, we tighten our belts and don't spend as freely as we might otherwise. That's not good news for manufacturers, suppliers, retailers-or many of the companies who process transactions for those purchases.

"We've known the recession was over for a while," said Scott Krugman, a spokesperon for the National Retail Federation. Despite that, he said, the outlook has been far from rosy. "Our biggest fear has been that it would turn into a double dip situation and a new recession would begin. It's been a slow and less-than satisfactory recovery. It's been a challenging couple of years for retail."

Ask anyone in the payment industry what the recession means for Merchant Level Salespeople, processors, acquirers, financial institutions or any of the people or companies whose livelihoods depend on transacting consumer purchases, and you'll receive a lot of different answers, too.

In the past, we've solicited opinions from our Advisory Board on this very topic (The Green Sheet, November 11 and 25, 2002, "The Recession" issues 02:11:01 and 02:11:02). Most expressed optimism and mentioned bright spots amidst the downturn. Implementing new growth strategies paid off for companies, and many were adding agents and signing new merchant accounts.

What's changed since then? For some, not much. A challenging market helps to prove Darwin's theory of natural selection-the strong survive. Bob Carr, founder, CEO and Chairman of Heartland Payment Systems, Inc., said simply, "Since 11/11/02, our business model and outlook have not changed. Our forecast for the bankcard industry and for our company and a few others is extremely bullish. Our forecast for most ISOs is bearish."

Dave Siembieda, President and CEO of CrossCheck, Inc. said that staying committed to growing their ISO and partner relationships over the past couple of years has worked out well for his company. "We've found that many of our partners are going through some changes with their work forces; ISOs are constantly being bought and sold and turnover is high. We've met this challenge by offering additional training and support. We've seen increases in sales and in the number of reps working for us, even in these tough times," he said.

Remaining flexible in a down market helps, too. Siembieda said despite the definitive news that the recession is over, "We're listening to what we hear from the 'feet on the street' and they're saying that it's still tough out there," he said. "Merchants are very demanding on pricing. We're responding with programs that offer some flexibility for our reps. We're finding that you have to have a range of services to offer your customers. That will lead to increased sales."

The NBER did not conclude that economic conditions since November 2001 have been favorable or that the economy has returned to operating at "normal" capacity, only that a recovery began that month. The committee, whose six members are economics professors, arrived at their conclusion based on a combination of factors including unemployment, income, wholesale and industrial sales and the gross domestic product (GDP). While some of these measures are expanding, others are not, resulting in a paradox that even the NBER members are at a loss to explain.

The economy is a complex system of intricate and interwoven components. One big factor in the current situation is that things simply don't work the same way they used to. The old rules for contraction and expansion don't seem to apply. Some indicators contributing to mixed feelings about the economy include:

  • The recession is over, interest rates have been at record low levels and consumer spending is holding steady. The GDP continues to increase, albeit modestly (Q2 2003 advance estimates of GDP show an increase of 2.4%). The Commerce Department reported a 0.5% increase in retail sales in June 2003, the strongest gain since March.

  • Output for computers, telecommunications equipment and health services is growing much faster than other parts of the economy.

  • Since November 2001, the month the recession "ended," two million U.S. jobs have been lost.

  • The unemployment rate surged to 6.4% in June, the highest since April 1994 and then dropped to 6.2% in July. In the San Francisco Bay area alone, more than 300,000 jobs have disappeared in the past two years, largely attributed to the bust.

  • Many analysts have argued the U.S. economy is in a transition period, evolving from manufacturing-based to services-based. Manufacturing jobs, as a percentage of the U.S. work force, have been decreasing over the last 50 years. In the early 1950's, 33% of U.S. jobs were manufacturing. Today, that number is about 11%.

  • U.S. manufacturers have cut more than 2.6 million jobs since July 2000, according to the U.S. Department of Labor. Nearly 56,000 of those jobs were lost in June 2003-the 35th consecutive monthly decline and the longest string of layoffs in manufacturing since World War II, the Wall Street Journal reported. Since 1992, 1.3 million manufacturing jobs have moved overseas.

  • With American corporations under increasing pressure to cut production and labor costs and build global supply networks, more than three million service jobs are expected to shift to foreign workers by 2015. Even IBM executives said the company needs to accelerate its efforts to relocate many higher-paying white-collar jobs, including software design, from the U.S. to countries like India.

In the new "global" economy, the old mechanism for restoring healthy economic growth by reducing inventories and excess capacities fails to apply. If only goods produced in America are counted, inventories appear to diminish, but goods produced elsewhere also contribute to inventory and capacity levels.

And that has an effect on consumer behavior. When important manufacturing jobs move overseas, people begin to worry and become cautious, which compounds the situation. "The cheaper cost of labor overseas is definitely impacting the U.S. consumer, which means less consumer confidence. Consumers are still very cautious with their spending. It's a telling indication," said Krugman.

The continued weak job market was blamed for an unexpected drop in the Consumer Confidence Index recently, which analysts had predicted would rise, but instead fell sharply-nearly seven points-in July.

Consumer spending accounts for two-thirds of all economic activity in the U.S. and has been a key element in keeping the ailing economy afloat. Economists track consumer confidence closely because it reflects the general outlook toward financial prospects.

Mixed in with all the negative information is good news. Service industries such as retailing, financial services, construction and other non-manufacturing areas expanded again in June 2003 for a third straight month. And Carr agrees that consumer perception is key element in payment processing. "The movement from manufacturing to a service-based economy is not as important a factor in the bankcard industry as overall consumer confidence and spending. A healthy economy is the critical factor for our industry," he said.

The shift over the last decade toward reliance on information systems has meant products and services are interrelated-it's often hard to differentiate one from the other. The positive growth noted for computers and telecommunications has created new opportunities for the payment industry. Siembieda said, "New connectivity options bring on products that are also services. New products we didn't even think about a few years ago such as PDAs, DVDs and wireless picture-phones represent new markets that have created segments of consumers who can't live without them.

"It's not just credit card terminals anymore. It's wireless devices, smart card readers, electronic banking-and the MLS gets to sell all of them and take a little piece out of every sale."

More good news: As summer ends and kids head back to class, the NRF estimates U.S. consumers will likely spend more than $14 billion on back-to-school merchandise.

Families with school-age children are expected to spend an average of $450.76 this year, up from $441.60 in 2002; those same kids and teenagers will also head to the stores on their own and will make additional purchases totaling $750 million, according to the NRF's survey.

And, after that, the holidays are just a few flips of the calendar page away.

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