Economy Trimming a Good Thing?

Perhaps our little economic downswing will give us a chance to trim the fat. All of the media focus, as I've seen it, has been on the housing/mortgage collapse which has in-turn sent our banks into a huge downward spiral with the rest of us bailing those lending banks out. I've got relatively strong opinions about it, but the end result is that some of the banks that took these risks die out or get bought up (already happening), the banks who managed it well come out on top (read: JP Morgan Chase, etc.), and that perhaps we get some sane legislation that keeps future risky loans (of any kind!) from bouncing around like hot potatoes. I love capitalism, but you can't let it run completely unchecked - or so my reading of Thomas Sowell tells me.

After reading the weekly Vanguard Economic report, I'm a little further convinced our downswing might do some good after all. I'll let this section of the report do the talking:

Productivity in the nonfarm business sector increased 1.1% in the third quarter, a bit better than expected but below the 3.6% growth rate in the second quarter. The Labor Department's preliminary data showed that hours worked fell significantly more than output. The surprising rise in productivity during an economic slowdown may indicate that businesses are more nimbly managing their workforces. "This shows the economy was weakening well before the financial events of late September," Mr. Aliaga-Diaz explained. Unit labor costs increased more than expected (at a 3.6% rate in the third quarter compared with a decline of 0.1% in the second quarter), but analysts are not concerned about inflationary pressure from wages. On a year-over-year basis, productivity gained 2.0% and labor costs rose 2.3%.

Essentially, what this tells me is that businesses themselves are also trimming the fat and as a result, will probably become more profitable and eventually more competitive globally. I've actually observed this personally myself at my own employer, and I welcome it.

While he probably delivered it poorly, when John McCain delivered his line during the campaign that the "economies fundamentals were strong", I don't think he was being insincere, just perhaps narrow-minded. Large business outside of the financial sector seem to be doing A-OK to me (I'm still buying stock right now, fwiw) - their balance sheets are fine. It's the balance sheets of the consumer that are out of order. Unfortunately this means less spending power for the consumer which will ultimately result in less revenue for businesses, and most likely price drops. But this also has the inverse effect of making our exports more attractive, which is a trend I'd LOVE to see happen. That prediction along with that report from Vanguard actually makes me optimistic now for the longer-term.