CPI_U 01/2011 (CPI excluding Food & Energy)

DC-MD-VA-WV: +2.3% over previous year

US: +1.0% over previous year

Source: US Bureau of Labor Statistics

Unemployment Rates 01/2011

US: 9.0% 01/2010: 9.7%

VA: 6.7% 01/2010: 6.8%

DC: 9.6% 01/2010: 10.3%

MD: 7.2% 01/2010: 7.7%

Source: US Bureau of Labor Statistics

Office Vacancy Rates 01/2011

Northern VA: 12.4% Prior Year 12.7%

DC Metro: 11.3% Prior Year 12.5%

Suburban MD: 14.1% Prior Year 14.8% (Dec 2010)

Source: CoStar Group, Transwestern

New Residential Building Permits 01/2011

MD #752; Value $149,155,000

VA 1,677; Value $213,916,000

DC 472; Value $39,348.000

Source: US Census Bureau

Q4 2010 House Price Index

MD -1.24%

VA – 5.6%

DC +1.39%

Source: Federal Housing Finance Agency

2011National Economic Projections

Business Spending: 10% Growth

GDP Growth: 3.2% – 3.5%

Unemployment: 9%

Interest Rates: Prime Rate 3.25%

Inflation: 2%

Trade Deficit: $505B vs $497B 2010

Crude Oil: Summer Value $110/barrel

Gasoline: $4+/gal, Diesel: $4+/gal

Housing: -3% in Value

Retail Sales: +3%

Sources: Merrill Lynch, US Census Bureau, US Dept of Commerce, Federal Open Market Committee,US Dept of Labor, US Dept of Energy, National Assn of Realtors, Kiplinger, International Business Times

The Bottom Line

Economists are predicting moderate growth for 2011 but below levels that would significantly reduce unemployment rates. Coupled with projected negative home price growth rates and high fuel costs, 2011 promises to be another difficult year for businesses. Though the MD/VA/DC area generally outperforms the nation as a whole, home prices will continue to be stagnant, which should moderate economic activity in our region as well.

The resulting Bottom Line is that businesses will need to diligently control costs in order to remain profitable while temperate consumer spending, downward price pressures and high fuel costs continue throughout 2011. Tax relief for equipment purchases can position businesses for greater operating efficiencies and growth in 2012 and beyond.

However, this experiential understanding of cost structures is insufficient when accounting managers are confronted with substantial changes to revenues, whether the change is negative or positive.  Labor requirements are often the most difficult to assess and therefore the most difficult to predict when reacting to substantial market shifts or internal sales levels.

A powerful tool kit to overcome the challenges posed by such substantial change is to prepare and maintain accounting and financial Key Performance Indicators (KPIs) specific to a company’s business model.  Identifying and tracking KPIs will allow management to fundamentally understand their company’s cost structures at a core level and will likewise provide the predictive tools necessary to expand or contract expenses in response to (or advance) of substantial shifts in revenues.

The value of accounting and financial KPI tracking will allow companies to quickly adjust and remain profitable in periods of contraction and allow companies to add labor and other costs in an intelligent manner to minimize operational disruptions during periods of expansion.