Recession Preparation November 21, 2019
It’s an interesting time to be in business. As a manufacturing & supply chain centric recruiter, we tend to have a different set of lenses into the things that are happening both on Wall Street and also what’s happening as it relates to the Private Sector. In this write-up, I’m going to use a few data points and a company we all heard about (General Electric). In addition, we’ll talk about the Private Equity space where there is less public knowledge (more cloak & dagger).
Here are some key data points that I think may or may not surprise us –
- Unemployment – October 2019 number – 3.6% – https://www.bls.gov/news.release/pdf/empsit.pdf
(Link to the Bureau of Labor Statistics who reports these numbers).
- Purchasing Managers Index aka PMI – October 2019 number – 48.3 – 3rd straight month of contraction –https://www.instituteforsupplymanagement.org/ISMReport/MfgROB.cfm?SSO=1#manIndexSumm
(a report put out by the Institute of Supply Management (ISM) that used to gauge whether manufacturing is growing (above 50) or contracting (below 50).)
- General Electric (GE) untapped Line of Credit – ~$41 Billion.
- Private Equity firms have tallied nearly $3 Trillion in funds to spend on deals.
So what does all this mean from my perspective? Is there a market correction coming? It’s not a matter of if it’s coming but rather when and what will it look like. What’s very intriguing is while there is a correction coming, there will be a tremendous amount of opportunities for those companies/industries who are stockpiling cash right now. Yes, there are acquisitions being made currently but compared to the amount of money in the system, the number of acquisitions occurring feels extremely light. There has also been this propensity to overpay for acquisitions in the past few years as there are multiple suitors driving up the asking prices.
When the economic shift starts to take place, you’re going to see Culp (GE’s CEO) make his move. Yes he has the line of credit in place but what most people are missing is he is cleaning up their backyard (divesting assets that no longer meet their new strategic plan) and he is deploying his playbook from his days at Danaher by building a culture of Lean / Continuous Improvement and attacking waste with vigor thus freeing up working capital to go out and buy more assets – ultimately repeating the cycle over and over. The same playbook that made Danaher a powerhouse and darling of Wall Street.
On the Private Equity Side, PE firms who tend to keep their firm’s headcount at a minimum and saddle portfolio companies with debt and additional hires will also struggle to get talent as quickly as they will need too. We’ve seen some starting to bolster their teams by adding Operating Partners but this is generally at the bigger firms. The small & mid-market firms tend to react and by the time they need the person in place, it’s already too late. Bench strength is going to be needed by PE firms if they are going to execute $3 trillion worth of acquisitions and get the returns expected.
So what are some of the challenges we see out there?
- Competition for people (especially the talented ones) will still be high.
- Unemployment may creep up a bit with a market correction, but not as substantial as people might suspect as the Baby Boomers who range in age of 56 to 74 have and will continue to exit the workforce with a high degree of wealth. In the US alone, this is ~73 million people. Yes, we have the Gen Xer’s (40-55 years old) and the Millennials (24-39 years old) but this is a big loss. Gen Z is just starting to the workforce (oldest are ~ 23 years old).
- The ability to attract people may be difficult for the old industrials as the newer generations are drawn to high-tech, etc.
If you’re a Baby Boomer and are in good health, you should be in high demand. If you’re a Gen Xer, you will be part of the most coveted class of people – why? – experience, knowledge, maturity, talent, etc. You may need to get an agent to manage your career. If you’re a Millennial, you are also highly coveted because you will be running it all in the next decade or so as the Xer’s move towards retirement.
As we move towards the pending correction, it’s not all bad news. I think it will be great news. It’s now time to get control of costs (personal & professional), put some money away for a rainy day (just like mom used to do), sharpen your skills, align your skills with where the macroeconomy is heading. What not to do – don’t get caught up in all the nonsense happening in DC; don’t get caught up in worrying about trade wars; Don’t let the news scare you!
Stay focused and prepare. Bumps in the road come and go. Great leaders see this over and over and recognize it as an opportunity.
In case you’re wondering, I’m a Gen Xer and I’m preparing for opportunity.
Written by: TIM SAUMIER, President and Founder
Tim Saumier started his recruiting career when he opened TYGES International back in July 2002 after purchasing a franchise from MRINetwork. He has grown the business from start-up office in 2002 to where it is today helping clients around the world solve their talent acquisition problems. While he does place people with companies, he brings much more through his consultative coaching with both companies and individuals hence the reason he has built long-lasting relationships that continue to work with TYGES.
Prior to starting TYGES, Tim spent thirteen years in corporate America with companies like John Deere, Moen, and Philips where he had the opportunity to work in supply chain, operations, and engineering during his career.
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