Where are we_in_econ_cycle
- 1. IS THE SKY FALLING: WHERE ARE WE IN THE ECONOMIC CYCLE… AND WHY YOU SHOULD CARE July 21, 2015
- 2. THREE QUICK NOTES • This is 100% stolen and/or 100% half-baked • Chill out not really “stolen” just cited from people smarter than me. And not really “half-baked”; it is data supported but proof is only for fictional detectives… • Not meant to make us experts on macro-economic indicators • Three good take-aways: 1. Economic cycles are going to happen. And they are going to impact our consumers, brands and innovation, so we should be briefed 2. Understand the financial realities that consumer will be facing, and how we might be able to best react to it 3. Get a new interesting take on the meta-macro trend that might influence all of the other trends people like us talk about 2
- 3. 1. Economic cycles are going to happen. And they are going to impact our clients, so we should be briefed 3 Who doesn’t like economic data charts?
- 4. Where are we in the cycle: • Broad economic trends • Business sentiment • Investor sentiment Three sets of data can tell us where we are in the economic cycle. 4
- 5. US economy is driving growth GDP growth rates • US picking up • Europe still struggling • Japan difficult • China slowing But expectations may be getting too much 5Source: FactSet
- 6. Expectation are for improvements 2015 and 2016 better than 2014 6 In almost every country 2015 and 2016 GDP projections are higher than 2014 Source: FactSet
- 7. Business are looking to expand Fixed investment and capacity • Closing in on 80% utilization Growth in utilization, inventory, hiring 7 Inventory and cap expenditure • Inventories not out of line and growing Hiring • Forecasted hiring is on rise Source: Oxford Economics, NFIB, Manpower
- 8. Earnings are at record highs No. Seriously… this is why S&P is up near double in last 5 years 8 Sales and Earnings are at record, highs… Where does future growth come from? Source: FactSet
- 9. Unsure of where future growth is coming from Past Earnings per share was driven by margin We can break down EPS into components -> (Sales*Margin)/ #Shares 9 Margin has been growth driver. But productivity might be tapped out Be wary when # of shares is the reason for future EPS growth Source: FactSet
- 10. Companies are buying back… But they tend to not be much better than individual investors 10 Maybe they are only concerned with returning value to share holders, but they are also conveniently keeping EPS inflated Source: FactSet
- 11. Which might be why forecasts are down All industries and size companies are projecting a downturn 11Source: FactSet
- 12. The technical warning bells are going off Which is almost always a very bad thing…. “Smart” money is forecasting down, and “Dumb” money is up 12 Dumb money – Margin Debt • Dumb investors borrow to invest while the market crashes Source: Conference Board
- 13. Where are we in the cycle? • Investors and businesses have enjoyed outcomes of nice sustained growth • Unfortunately the next drivers of growth are not apparent • All the technical indicators say “watch out…” Late F or G Quick Sum up… 13 • Slower ramp up might mean longer boom • Change in rates and inflation could help • Maybe Europe improves But maybe…
- 14. 2. Consider the financial realities that consumer will be facing, and how we might be able to best react 14 Five things to consider to put this info to use without sounding like an econ professor
- 15. WHAT IS THE ROLE OF YOUR PRODUCT? 15
- 16. WHAT HAPPENED IN PAST DOWNTURNS? 16
- 17. WHAT IS YOUR POSITIONING IN THE COMPETITIVE SET? 17
- 18. HOW DOES YOUR CUSTOMER DEFINE VALUE? 18
- 19. HOW DOES YOUR CUSTOMER CHANGE UNDER STRESS? 19
- 20. 3. A new interesting take on the meta-macro trend that might influence all of the other trends people like us talk about 20 My hunch is that trends in brand, customer values, and innovation are tightly linked to economic cycles
- 21. I’m willing to bet the following is true. o In good times all boats rise, but in the downturn a brand’s positioning / adaptability/ and value can become more apparent to consumers. o Brand data suggests that within categories, brand values and rankings shift more in times of want than in times of plenty. o Some categories are more ripe for changes in brand leadership. During economic downturns… Brand leadership within a category is more in flux 21
- 22. I’m willing to bet the following is true. o Innovation addresses points of need and friction, these points are easier to identify and isolate in downturns. Also when belts tighten, investment and talent have less room in big companies. o Recessions past have shown us a consistent pattern of innovation influx. The cases from SXSW alone are telling. In 2009, at the depth of the last recession, 3D printing and Uber took the stage. During economic downturns… The rate and diversity of innovation accelerates 22
- 23. I’m willing to bet the following is true. o Economic downturns bring a lack in institutional trust and lots of finger pointing and some soul searching; all can drive changes in meta consumer-values o Data tells us the tipping points on mass consumer-value shifts align with changes in the economic cycles. o It can be hypothesized that - these changes of value fuel the next round of innovation, which in turn impact brand leadership. During economic downturns… Macro consumer value-shifts occur 23
- 24. BIG WRAP UP 1. We are much closer to the next downturn than the last 1. There are a handful of thing we should be pressure testing on our clients and customer insight now, to prepare for the downturn 1. What if changes in brand leadership, innovation trends, and customer value are all sort of a side effect of the economic cycle? 24