We've heard it (and I've said it) thousands of times: correlation does not mean causation.
Yet we still make the mistake (and I do mean "we").
Tyler Vigen has developed a correlation machine. He has scraped lots and lots of data series, then gone searching for correlation. Take a look at the Spurious Correlations website, and watch Tyler's video down at the bottom. (Hat tip: Greg Mankiw)
The Bureau of Labor Statistics just announced an increase in the number of job openings. Coming on the heels of last week's announcement that total employment had regained the level held before the recession, this is good news.
The Federal Reserve's latest survey of senior loan officers has some cheery news. I like to look at the percentage of banks tightening credit standards, versus easing credit standards. Keep in mind that banks are very hesitant to admit that they are easing. Any figure below 0 on the chart is good news for borrowers.
The survey also said that spreads (the difference between the interest rate charged to borrowers and the bank's own cost of funds) continues to narrow.
All businesses should have regular conversations with their bankers. Even you don't have bank credit, get to know a banker. It's vital to know if you could be bankable, and what your financial statements would have to look like.
Today's employment report was good. Lots of jobs added, and unemployment took a sizable drop. This isn't full employment yet, but the economy is clearly improving. The Wall Street Journal reported this morning one contractor having trouble finding carpenters; he may have to offer pay equal to what carpenters used to make before the recession. Talk about labor shortages (by folks who don't want to offer higher pay) is a typical sign of an economy nearing--but not yet at--full employment.
Business implications: with the economy strengthening, your current employees have more options. This is a great time to tell them how much you appreciate them. If your managerial basics have been lagging, you'll find out when your employees tell you to "take this job . . ."
Consumers are feeling better about current conditions and prospects for the future, but the improvement is gradual and subject to short-term swings.
Business leaders reading the papers or watching TV might think that "consumers are tapped out." Neither the consumer attitude surveys nor actual spending support this hypothesis. Consumers are in moderate mode--not stretching to spend more, not hunkering down for the apocalypse. Expect continued gradual growth in 2014, but possibly an acceleration of spending next year.
Economic contingency planning is a specific case of scenario planning. I've not pushed scenario planning because so often I saw too simplistic examples, such as a base case that looks like a straight line, an optimistic sceario that was a straight line with a steeper slope, and pessimistic that had a flatter slope. Not much value beyond the obvious, it seemed to me.
However, planning for possibilities such as a recession or a brief economic boom is vital. A recent white paper is good reading on the subject of Scenario Planning for the Agile Organization. (The company publishing it does a minimal amount of self-promotion in the paper.)
The five top impediments to scenario planning really struck true to my experience:
Not having enough time
Planning model not properly set up
Don't have a good handle on drivers
Budgeting is zero based
Management hasn't shown an interest
The benefits of scenario planning identified in the paper are very strong. They include better understanding of the company's key drivers of profitability as well as the sensitivity of these drivers to other variables. The list goes on; read the paper for more benefits.
This white paper is a good companion piece to the excellent Harvard Business Review article, Deciding How to Decide.
Getting started can be fairly simple. I suggest looking at the biggest risk. For many companies it is recession, but it could also be a competitor's technological breakthrough, a drop in government defense spending, or a drought. Then start a planning exercise based on what the company would want to do in such a scenario. Having the contingency plan in place ahead of time will speed implementation if the risk event happens. For more, see my Forbes.com article, Goals for Economic Contingency Planning.
I posted Jobs Outlook 2013-14 on my Forbes.com blog. Key takeaway: Job growth should remain steady at a sluggish pace for a few more
months, and then accelerate to a moderate growth rate, without ever
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