Producer Price Index Sept 09

20 10 2009

This morning the Bureau of Labor Statistics released the September 2009 Producer Price Index report.  The PPI dropped a little this month mostly due to cost of gas declines (0.6% decline).  In August we saw a significant increase at 1.7% raises a little alarm in that the fluctuations are evident.  The fact that most of this is based on energy prices swinging is both a little calming and potential for more signs that oil prices are moving too much.

“Wholesale prices in the U.S. unexpectedly fell in September on lower fuel costs, a sign inflation remains muted and the Federal Reserve has leeway to keep borrowing costs low as the economy recovers.”  Bloomberg

What does this mean to me: we will probably not see much increase in prices over the coming months (keep watching the price of oil/gas).  This is also a sign that while some of the recent indicators have been good, we might see a lull in the recovery process.

As a part of this series, I am also going to add the price of oil.  It was not one of the Baumohl Indicators, but I think that might have been because it comes out of the financial markets.





Product Complexity

19 10 2009

Jonathan Becher of the Manage by Walking Around Blog last week wrote about “Less is More.”  While he starts out with an attack on PowerPoint presentations, he then broadens his commentary to software.   His point is spot on and while I can not think about specific example in software, there have been a couple of interesting technology gadgets that could answer his question.

The most obvious to me is the Flip video camera.  They started with the premise that you don’t need all the special effects, and gadgetry that bloats R&D, wastes battery life, and ultimately increases the cost.  They provided just a video camera with a USB connection to download the film.  No more, no less.  And surprisingly (and telling) in the age of endless features that are rarely used it was an immediate hit.

  • In your space, are there customers that are over-served by the functionality of the competitive product suites?  If so, could you use this as a little Blue Ocean styled opportunity to address a new market?
  • How much of your product’s features are truly used?
  • Are the core functions of your product complicated by the rarely used features?
  • Do you run the risk of over complicating your product to its own demise?

I think it will be interesting to watch Flip grow over the next few years.  Will it attempt to morph the product to compete with the more complex video cameras?  Will it lose it’s identity as it does?  Is accessorizing the Flip a step in complexity, or merely a nice personalized touch?

Too Much

If we take Jonathan’s initial question a step in the opposite direction, can you think of a company that got too complex for its own good?

Here I think we can come up with a great many examples.  A clear example is Social Networking.  The initial idea behind LinkedIn was fantastic and it was easy to see why everyone bought in.  Lost former co-workers were easily found, and we could maintain a single repository for our network.  No matter when they changed jobs, everyone updated their profile.  Now, in an attempt to do more, LinkedIn is at risk of losing their audience.  Groups were a great idea, but their were no controls, no rules on how to use them (or not use them).  Now there are groups in every direction and people are using LinkedIn as a database marketing tool for pushing spam.  Facebook is perhaps beginning to fail under a similar complexity.  We all have friends that put their entire lives into Facebook (which may create its own problem) and send out virtual drinks, winks, pokes, games, flair, etc.   I would love to periodically hear what my friends are up to, but I can no longer find that out unless I spend a tremendous amount of time to design and manage the environment.





The Dow (DJIA) hits 10,000

16 10 2009

On Wednesday this week (October 14, 2009) the Dow Jones Industrial Average topped 10,000.  Although it struggled out of the gate this morning, I am curious why we did not take the time to celebrate re-reaching this milestone.  Clearly, this is a sign that the economy is chugging forward again.

If we look back to September 19th, 2008, the DJIA closed at 11,388 and only days away from near free fall.  Over the next couple of days, panic would set in and the markets were paralleled to “The Great Depression.”  The DJIA at 10k represents we have recovered 70% of what we lost since September 19th, 2008.  We still have a way to go, but a little celebration might just be what we need right now.  Not much, we can’t afford the hangover, but perhaps a little toast to reaching 10k again and may we keep doing a little better every day.

Looking back…Between Oct 24th, 2007 and September 19th, 2008, the DJIA shed about 20% of its value (14,093 to 11,388).  It would then lose an additional 34.4% by March 9th 2009 when the market reached its lowest level in 12 years at 6,547.  If we start the clock at Oct 24th, in two years we have recovered about 45% of the losses we incurred during the recession of 2008 and 2009.  Perhaps not as happy a picture, but consistent progress in the right direction.  This still represents ~50% recovery in 6 months, what we lost over two years.  If the trend holds, perhaps we are back to 2007 levels within another 6-8 months, and then can continue to recover on the lost time.

DJIA Recovery

The other item worth noting is the declining variation in the closing gains.  Over the last three months, the variability has diminished to levels not seen during the recession.  This is another great sign indicator of stability and overall economic health.  The market likes gains, but it loves consistency.

DJIA Recovery Variation





Consumer Price Index Sept 2009

15 10 2009

The CPI for September was released today.  Nothing all that surprising – it looks like the rebound last month towards a positive trend (perhaps not for everyone), or an upward trend continued for a second month.  It appears as if the trend may be resetting with a 1.3% drop from where we were in Sept 2008.

CPI History 1997

How to use this information:  Have your internal statistician look at CPI (and PPI) and see if they give you any early warning signs against some of your variable costs – raw materials, finished goods, average selling price, etc.

  • Does CPI move with your Cost of Goods Sold (COGS), or your margins?
  • Could it give you a one month warning to tighten the belts a little bit?
  • What is the impact on your average selling price?
  • Do your customers move faster than you?

Historical Trends

If we look at this from a historical perspective, we can tell there has been a stead upward trend since the mid 60’s.  The variability was pretty consistent from the mid 60’s through 2004, then in 2005 it looks like the variability began to increase.  These charts don’t provide us much actionable information, but show us the trend has been consistent, and that there was a disruption with the recent economic conditions.  This disruption is what is highlighted in the earlier part of this blog.

CPI History 1913





Employment Situation Sept 2009

6 10 2009

Statement of Keith Hall, Commissioner, Bureau of Labor Statistics before the Joint Economic Committee UNITED STATES CONGRESS (PDF of his speech, or PDF of the actual report)

Job losses continued in September, and the unemployment
rate continued to trend up, reaching 9.8 percent. Nonfarm
payroll employment fell by 263,000 over the month, and losses
have averaged 307,000 per month since May. Payroll employment
has fallen for 21 consecutive months, with declines totaling 7.2
million. In September, notable job losses occurred in
construction, manufacturing, government, and retail trade.
Construction employment decreased by 64,000 in September.
Job losses averaged 66,000 per month from May through September,
2
compared with an average of 117,000 per month from November 2008
through April.

“Job losses continued in September, and the unemployment rate continued to trend up, reaching 9.8 percent. Nonfarm payroll employment fell by 263,000 over the month, and losses have averaged 307,000 per month since May. Payroll employment has fallen for 21 consecutive months, with declines totaling 7.2 million. In September, notable job losses occurred in construction, manufacturing, government, and retail trade.

Construction employment decreased by 64,000 in September. Job losses averaged 66,000 per month from May through September, compared with an average of 117,000 per month from November 2008 through April.”





Mass Layoffs August 2009

24 09 2009

Yesterday the Mass Layoff report was issued by the United States Department of Labor – Bureau of Labor Statistics.  The data here is interesting in a few ways.  The Mass Layoff report highlights the number of events where 50 or people were laid off by the same firm.

  • Perhaps a little good news for the US economy
  • A little analytics lesson

First off, the US Economy.  We can look at a couple of things here that probably tell us the situation is still bad, but perhaps another indicator that we are rebounding.  In the first chart, the bars represent the events (not total layoffs – but the numbers are highly related).  You can see that the number for August appears to be quite a bit better than July and the previous 12 months, but August is also lower in general.  When you consider the raw volume of the last 12 months, perhaps we just ran out of people to layoff.  My initial assessment is that while it looks like we are heading in the right direction, we may just be witnessing the normal August dip.  Call it cautious optimism.

Aug 2009 Mass Layoff Peaks

Now looking at the data from a visual standpoint…below is how we typically look at this type of data.  Here we would conclude that things look like we have hit bottom and are moving in the right direction.

Aug 2009 Mass Layoff Raw Data1

Yet if we look a little more closely at the data above (and perhaps dig at some of the underlying regional or industry data) we can make a lot of different potential comments.

  • We are coming out of a major event – any data is going to be a little blurry.  Any investments are going to be risky, but with that risk comes the upside reward of potentially being a first mover.
  • The general trend might be improving, but the volumes are still way above normal levels.  How long can we continue to shed people like we have for the last 12 months?
  • The peaks and troughs also show that we are still greater than 2x normal levels.  Clearly, there are still problems in the economy.




Wii or not to Wii

22 09 2009

One of the most interesting brand developments in a long time is the Nintendo Wii.  The video game market has been hot for some time now, but the story was the same.  Better graphics, better visuals, better reality and gore filled titles.  How do you break out of the crowd?

Look no further than the Nintendo Wii for a great story.

How about finding a different tact all together?  By starters, let’s take away a barrier to purchase – parents that don’t want their kids just sitting in front of their TV.  Let’s add an element of physical activity into the game.  Then let’s market family styled competition.  This is nothing less than brilliance.

  • What can you do to change the market parameters?
  • When was the last time you had a meeting of your best minds to challenge status quo?
  • Are you playing leap frog with your competition?
  • What would happen if you did something radically different?
  • When was the last time you came up with a brilliant idea and pushed it forward?




Consumer Price Index (CPI) August 2009

16 09 2009

Here is this morning’s press release of the August 2009.  It is a great example of how not to explain complex data.  Here are opening two paragraphs.

On a seasonally adjusted basis, the Consumer Price Index for all Urban Consumers (CPI-U) rose 0.4
percent in August, the Bureau of Labor Statistics reported today. The index has decreased 1.5 percent
over the last 12 months on a not seasonally adjusted basis.
The 0.4 percent seasonally adjusted increase in the CPI-U was driven by a 9.1 percent rise in the
gasoline index. This increase accounted for almost the entire advance in the energy index and over 80
percent of the overall increase. Despite the August increase, the gasoline index has fallen 30.0 percent
over the last 12 months.
On a seasonally adjusted basis, the Consumer Price Index for all Urban Consumers (CPI-U) rose 0.4 percent in August, the Bureau of Labor Statistics reported today. The index has decreased 1.5 percent over the last 12 months on a not seasonally adjusted basis.
The 0.4 percent seasonally adjusted increase in the CPI-U was driven by a 9.1 percent rise in thegasoline index. This increase accounted for almost the entire advance in the energy index and over 80 percent of the overall increase. Despite the August increase, the gasoline index has fallen 30.0 percent over the last 12 months.

In general, the CPI numbers are all over the place as a result of a rebounding economy.  It is also a great example of why we need to look at individual numbers and come up with an executive overview of what this means.

Over the next couple of days, I will add more analysis here as I can dig into the numbers in greater detail.  There is a ton of information here.





Producer Price Index (PPI) August 2009

15 09 2009

As part of my Baumohl series on US Indicators, here is the press release on the August PPI data.  The PPI (Finished Goods) increased a seasonally adjusted 1.7% in August.  July saw a .9% decrease and June a 1.8% increase.

So what?

If we are looking for signs for the economy it is a good sign that things are again improving.  If we look at the last 12 months, 8 of the 12 months saw declines in the PPI including 5 straight months from Aug 08 through Dec 08.  4 of the last 5 months have seen positive advances.

What about Cost of Goods sold?  I would certainly expect some industries to see their COGS rate start to increase.  If we remember back to late 2007 and early 2008, ingredient prices started to rise dramatically.  See the chart below and notice the area where the PPI was elevated quite a bit about the trend line.

Aug 2009 PPI History

What does it mean to your business?  It clearly depends on the industry and your ability to act on external data.  If you are a bread manufacturer and your margins are pretty lean, you might need to look somewhere to balance your expense ratios.

Investing?  Look at your portfolio.  What industries are you invested in?  How does the PPI impact those companies?  If we are seeing the trend return to perhaps the elevated levels of late 07 / early 08, perhaps there are some solid opportunities?  Look at how those companies did during those time frames in terms of performance?





Employment Situation Aug 2009

9 09 2009

This is a new series of blogs in which I will call out and blog on a number of economic indicators based upon the musings of Bernard Baumohl in The Secrets of Economic Indicators.  In this series, I will work to provide a visual or two to explain the situation as well as a link to the press release.  The goal will be to post a blog covering the reported data and to build out a series of informational charts based upon the data.

Employment Situation is one of the more important indicators of US Economic health, and perhaps even more so in this economic climate.  It provides us an indication if the economy is expanding, or contracting in terms of jobs and therefor money to be spent.  Here is the press release from 9/4/09 which is August 2009 data.

Key points (from press release):

  • Non-Farm payroll employment declined by 219,000
  • Unemployment increased by 466,000 to 14.9 million
  • Unemployment increased to 9.7% (up .3%)
  • While job losses continued, the losses are not as bad as the months before
Aug 2009 Unemployment Data by gender and race

Aug 2009 Unemployment Data by gender and race

Analysis:  We are still losing jobs in the economy.  Teenagers are at almost 2.5x the national average, and minorites having 2x the increase as the average.

Risk:  While we have some indications that the recession is getting better, it is clear we have some elements that still have some ways to go.  If your business is targeted at teenagers and/or minorities you may want to plan for sales to remain weak until the trend at least turns back to positive growth.





Survival of Innovation

31 08 2009

In 1988 Pinnacle Brands broke into the baseball card market.  The market had long been dominated by a couple of players (Topps,  Donruss, and Fleer) and the market was doing fairly well.  It catapulted onto the scene by throwing in new features to the market, more colorful cards, full edge bleeds, more information, etc with their Score brand.  Over time they added in brand variations that were targeted at very specific markets:

  • Score:  Lower price point, more kid friendly
  • Select:  Mid price point, geared for the beginning collector
  • Pinnacle:  Higher price point for the more serious collector

If you followed the baseball card market at that time you will remember it as a rather unique time.  It was perfect example for economists.  The value of each card, pack, box was independently valued by third parties.  Card shops popped up in nearly every neighborhood to trade cards, and serious collectors were following the distribution trucks buying entire cases at a time before they even hit the shelves.  The catch was that you could not make all the cards you wanted.  The more you made the less you sold, and vice versa.

One of the main things that happened was the wrong sales mentality.  What made them successful, new  innovation, also hurt them.  They tried to stack the cards to the ceiling and create a consumer good mentality, not realizing the principal that the card would really only sell if they kept product very limited.

Hindsight being perfect (still a good lesson none the less) they should have kept production runs low, elevating the brand and looked for other ways to extend the brand.  As a last change, they started to get into other types of cards.  I think in the beginning they had the brains to come up with demand creation card games like today’s Pokeman genre.

Upper Deck came along in the same year and appears to be the leader in the field today.  Usually someone is going to survive, are you doing everything you can to make sure it is you?





Mulligan

23 07 2009

If you were given a corporate mulligan, how would you use it? What would stop you from doing it over?

Or think of it a different way…

How would your competition use your product platform, your assets, your customers to take advantage of you?  What happens if you push all of your unprofitable customers over to your competition?  Let them deal with the headache, the loss of time and money.

One of the most interesting thing about this current economic environment is that there is a new entrepreneurial spirit.  With this brings new technologies, new business models, etc.  Would GM and Ford take a mulligan when Toyota entered the US market?  Take a look at Blockbuster.  Did they see Netflix coming?  If they did how could they have reacted?

Can someone do this to you?





Pretty Words

15 07 2009

Listening to Sonia Sotomayor retrack her “wise Latina” comments made me think about an old Vince Gill song – Pretty Words.  “They’re just pretty words” seemed about right.  This is often the role of the politician, to say things that make people feel better.  We have limited manner in which to hold them to their words, so we often judge the words based on if we believed what they were saying.  Think of how we now perceive Roger Clemens, Alex “A-Rod” Rodriguez, and the steroid gang.

One of the problems we have as leaders is an overuse of pretty words.  We are often asked questions that can not be answered at that time, thus forcing us to spin a response:

  • Are we having layoffs?
  • Are we selling the company?

While these hurt credibility with the front line, they are necessary to keep some level of sanity and productivity.  Yet, what happens when executive communication seems to be only about spin and pretty words.  If the rank and file feel “pretty words is all he is giving you” then we have a problem with communication and trust.  If these are broken, you can bet productivity is no where near optimal levels.

As executives and leaders we can know, or we can think we know if people are listening.  What I have often seen is that the good ones assume they don’t know and find out – thus reinforcing positive communication.

  • When was the last time you had an outside, independent team assess “trust” in the organization?
  • What would be the value to the organization?
  • What if you hear something you don’t like?




Supply Chain Profits

7 07 2009

In terms of delivering goods or services to the consumer, the supply chain is not created equally.  More often than not, one part in the chain controls the bulk of the profits.  How did they get there?  They most likely earned it (though there are some interesting examples of other methods).  They have the power in chain to manipulate and control the negotiations.  They are the perceived value provider.

  • Where do you stand in terms of delivering value to the consumer?
  • What do the other parts in the supply chain offer in terms of value?
  • Can this chain be altered either from someone in the chain, or perhaps a whole new value chain?
  • What are your relations with the people in control, or with the entire chain?

Depending upon your business model, this could be a potential opportunity or threat.  We need to understand our position in the supply (or value) chain and if the position is changing.  We may not need to do it constantly, but we need to make sure someone owns the process and it is built into an ongoing management discussion.  At the very least it should be part of the strategy development plan.





What goes up…

22 06 2009

“Mama don’t take my Kodachrome away” – well she didn’t, but customer demand finally did.

Monday June 22nd, 2009 – today marked the end of Kodak’s Kodachrome product.  After a 74 year run, Kodachrome only makes up less than 1% of Kodak’s revenues today.  While this clearly is another example that film is dead, it has bigger implications for performance.  Nothing lasts forever, brands will come and go.  It takes tremendous effort to get your brand to the top, but far more to keep it there.  Not only do you have your traditional competitors, but markets change, morph, and die all the time.

  • When was the last time you thought about what new products your competitors were launching?
  • Are you revolving or evolving the brand?
  • When was the last time you did a little Blue Ocean thinking?
  • Where are your biggest threats coming from tomorrow?
  • What is your process to identify these issues?
  • How tied are you to your infrastructure?

If you want to stock up before it fades away…

Who knows…someday you will find this on something like a Retro Ebay where oldies, but goodies go to never die.





Blue Ocean, Red Ocean…

21 04 2009

If you have not read the book on Blue Ocean Strategy, I would highly recommend it.  No matter what industry you are in or how competitive your market is, it should make you think about innovation.  Most companies I have worked with find it difficult to integrate innovation into their management cycle, and therefore innovation is done in an ad hoc manner.  

While a Blue Ocean (Red Oceans are competitive markets where everyone has spilled blood) market play may not be for everyone, you can think of new ways to measure the business, process improvements, compensation plans, marketing tactics, etc if you create a more formal manner for innovation.

Additionally, you might find a great deal of value of reassessing the competitive landscape.  It never hurts to discuss how would a new competitor attack the market.  All great businesses find themselves under threat from unseen ideas – this may just give you a more proactive manner to see the ideas coming.  




External & Market Indicators

25 02 2009

One item most organizations struggle with is leveraging external indicators. Early last year, the price of gas created a chain reaction. Most companies cost of goods sold increased to where they were forced to raise their prices as their margins eroded.  

Even if we do that, we typically do not have a systematic way to incorporate the learning into a business process. What we would need is the ability to understand the external indicators, know of potential sources for the information, and work these into ongoing environmental scans.  

What is the value of understanding how the consumer price index impacts your revenues? What happens if you were able to move before your customer in terms of supply chain interruption? In some cases, this could mean millions to your top or bottom line. There are a number of organizations that knew the market was struggling in 2008, but did nothing to prepare.  And a number of those names will never be the same (GM, AIG, Circuit City, etc).

When is the last time you did a formal environmental scan, discussed the results, and put new actions into place?