Reports of strong growth in the fourth quarter of 2009 were a welcome addition to the positive growth in the prior quarter, but I remain concerned about the sustainability of that growth. The recession took down the financially weakest firms and weakened the rest. Without robust growth in the rest of the economy, we will see the financially weakest of the remaining firms contract as well. My home institution of Dartmouth is a case in point.
For those not following the local news, the College has tasked itself with trimming $100 million from its annual expenditures over a two-year window. The number comes from the simple arithmetic of having lost a billion dollars of endowment (which, at a 5% spending rate, is $50 million) and from making a prudent decision to reduce its spending rate down by 2 percentage points to about 5% (creating the other $50 million, when applied to the remining $2.5 billion). The College's president has stated, correctly, that this cannot happen without reductions in staffing. <!--break--> I suspect that Dartmouth is not alone -- not only in higher education, but around the economy among firms that are having trouble with traditional sources of revenue.
The ramifications of this contraction are not going to be benign, for the local community or the college itself. Watch an edited video of a panel discussion on campus yesterday and read the report in The Dartmouth here: