Since we deal in many markets every day, people ask Source One about what we are hearing from suppliers and clients relative to the economy. Basically, there have been four major drivers of the economy during the last year - Government Stimulus, Government Hiring, Exports and Emerging Markets. Let's look at each one of these.

Government Stimulus - 1 1/2 years ago, the US / global economy was in coronary failure. The government applied paddles in the form of $2+ trillion of government and Federal Reserve stimulus. You would think that $2 trillion would revive the patient. It barely put a blip on the screen. Industrial production has fallen April 09 - April 2010 by 1.3%. Not the result you would have expected. In addition, the government needs to get its fiscal house in order. This leaves little room for additional stimulus. For a little humor, here is my plan to balance the budget.

Government Hiring - a big chunk of money went to bail out the states last year. States either maintained or increased employment levels. So far the money is not coming from the Feds this year. Estimates are for up to 2 million government pink slips in the upcoming year.

Exports - bright spot in the economy for the last few years. The weak dollar made US goods cheap overseas. Now the Euro is tanking. This will make our exports more expensive and will dampen growth for China and the US. The double whammy to corporate profits will come when foreign sales are converted to US dollars. For years, US companies have realized outsized profits from the currency exchange gains. I suspect that in future quarters you will hear corporate execs blame the strong dollar for profit misses.

Emerging Markets - emerging markets will continue to do well, but growth will be a little lower due to slowing European and US economies.

With interest rates at historical lows, economists forecasted rising inflation. How can manufacturers raise prices with such low capacity utilization? Higher interest rates will result from increased risk associated with sovereign default and not from inflation. Governments bailed out the banks. Who will bail out the governments. Higher rates will have a slowing effect on the economy.

Higher taxes seem certain in the future as all levels of government look for new sources of revenue to get their fiscal house in order.

Some people might see this as a pessimistic view. I consider myself an optimist and a realist. If you face reality, you can take action now to prosper in the future. As certain markets decline, others do well. There will be great opportunities in servicing aging baby boomers. We see many of our pharma clients doing well. Education is seeing boom times as people retrain for the future. Many technology sectors like the Internet will continue to grow and provide opportunity. At Source One, we use our knowledge of markets to help our clients to obtain a best in class pricing for purchased goods and services.
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Steve Belli

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