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July 22, 2020Analysis of the Forces Affecting Business

[email protected]

The New Normal: Five Patterns That Will Change

and Five That Might

MCC

July 22, 2020

Chris Kuehl – Managing Director

Armada Corporate Intelligence

mailto:[email protected]

5 [email protected] July 22, 2020www.armada-intel.com

Was There Ever an “Old Normal”?


Let’s Deal with Some Perceptions

• What role does manufacturing play in the US today?

– Smallest share of GDP since 1947 – 11.0%. Professional services at 12.8% and

government at 12.3%.

– US is still second largest manufacturing nation in the world – only China has a

larger output. US accounted for over $2 trillion in output.

– Direct employment is at around 12 million and is expected to decline to 11.3

million by middle of the decade. What is not counted is indirect employment. For

every person working directly there are 15 jobs that are dependent on that

production

– Robotics and technology have made US manufacturing competitive but it has

come at the expense of low skilled jobs. High skill labor remains in short supply.

– Vast majority (98.6%) of manufacturers are small businesses. 76% have fewer

than 20 employees


US Remains a Small Business Economy


Do We Know Anything at This Point?

• COVID 19

– Not as deadly as many of the viral attacks in the past but much sneakier and

aggressive. Surge has occurred in specific areas in US, less in Europe and Asia

– Treatments are not all that effective but promising new approaches. Vaccines

are still a year away.

– CDC “Trifecta”.

• Economy

– Formally in recession – Q2 was historically bad. Still not as serious a recession

as 2008 but getting there. Q3 likely to show drop of over 30%

– Consensus still holds there will be a “V” recovery but not in Q3 and probably

more of a “swoosh”.

– Lasting damage in terms of employment, failed business and lack of government

revenue. Retail numbers and consumer spending recover.


Latin America is Hotspot (and US and UK)


Unusual Patterns


Who is Most Vulnerable?


Global Supply Chain

• China remains number two economy and still has advantages in production

cost and infrastructure but trade wars and COVID 19 have impacted its

export and import sectors.

• Diversification of supply chain is accelerating – moving to Vietnam, India,

Mexico, Thailand etc.

• Warehousing is back in favor – less trust in the JIT system.

• Reshoring to the US is accelerating – companies that rely on robotics and

technology can relocate easily but those dependent on labor might not be

able to.

• Global travel will be affected for a long time and that puts pressure on

expatriate activity as well as traditional sales activity.


Supply Chain Chaos


Employment Patterns

• Work at home is here to stay but likely not in the present form – more

hybrid systems with time spent in the office as well as at home.

• Labor shortage in many sectors remains an issue – even with large

numbers of unemployed. Manufacturing, construction, transportation,

medical, technical among others.

• Sharp management differences between Boomers, Gen-X, Millennials and

Gen-Z.

• Vast majority of employees are in dual income families and that makes

them far less mobile.

• Considerable diversity in the workplace – different cultures, languages,

ages, genders, races, family situations.


Job Losses Before Viral Outbreak


Significant Shift to Working From Home


Consumer Behavior

• Accelerated adoption of the online option and the steady erosion of the

brick and mortar store.

• Shift in emphasis from public entertainment to home based activity –

decline of movie theaters, events and even restaurants. 25% of restaurants

and 30% of movie theaters will not survive the lockdown.

• Reduction in overall consumer spending due to high rates of

unemployment.

• Significant differences in consumer preferences between the different age

cohorts – Boomers are still thing buyers, millennials and Gen-Z are

experience buyers.

• Consumer confidence is rooted in employment numbers and they will be

slow to rebound.


Immediate Impact


Technology and Work

• Rise of robotics in every sector – manufacturing leads the way but finding

its way into every area – medical, professional, transportation etc.

• Development of AI and higher level computer capability challenges the

notion that there are things that only people can do.

• Revolution in communication underlies the entire process of working from

home or some other remote location.

• Development of “cobots” – machines designed to interface with humans

directly.

• Education gap developing between those with technological skills and

those without.


Asia Leads in Robot Adoption


Massive Productivity Increase with AI


Role and Reach of Government

• COVID 19 crisis illustrated the kind of issue that only government is

equipped to address – others may include climate change, economic

development, migration etc.

• Debt and deficit will limit what governments are able to do as they will lack

budget flexibility.

• Regulatory environment will alter as new challenges emerge – consumer

protection, worker protection, environmental protection.

• Expanded role for government in terms of research and development –

especially in the medical community but also in technology.

• Contending with the connection between civil and social unrest and the

state of the economy.


Debt Climbing Fast


Over $21 Trillion – Who Owns It?


Status of Globalization

• Trade wars will likely continue as countries focus on rebuilding their

domestic economies with protectionist policies.

• Broad supply chains involving many nations will fall out of favor as

complexity becomes a bigger issue.

• Travel bans and fears will persist for a very long time and will alter how

business interacts with the global market. Local relationships will

dominate.

• Political conflicts will expand and accelerate due to the economic collapse

– more wars, more civil disturbances.

• Major global issues set to emerge – migration will become an even bigger

challenge than it has been for Europe and the US.


2020 is Not Going to be a Good Year


No Shortage of Conflict


Capital and Lending Markets

• Nearly as much change and crisis as occurred in the 2008 recession.

Massive task of administering government largesse. Trying to lend in a

depressed economy.

• Coping with companies and people who now have major blemishes on their

record.

• Massive increase in both corporate debt and consumer debt. Government

debt and deficit is also a lingering problem.

• Credit issues will affect the decisions of credit managers as well as banks.

• Sectors that depend on debt will remain nervous – home builders,

automotive and other big ticket purchases.


Credit Managers’ Index

Jun '19 Jul '19 Aug '19 Sep '19 Oct '19 Nov '19 Dec '19 Jan '20 Feb '20 Mar '20 Apr '20 May '20 Jun '20

+/- -0.7 -1.6 1.8 -1.2 0.5 0.9 -0.9 1.8 -0.3 -7.2 -8.3 3.5 6.9

-10.0

-8.0

-6.0

-4.0

-2.0

0.0

2.0

4.0

6.0

8.0In

dex

Combined Index Monthly Change(seasonally adjusted)


Education and Training

• Massive hike in unemployment did nothing to alleviate the workforce

shortage. Manufacturing, construction, transportation and many other

sectors still can’t find qualified people to hire.

• The 40 to 50 million lost jobs were partially furloughs and it is expected

that around 60% to 70% will be rehired but that leaves millions with no job

and limited skill – they will need to be trained.

• Schools will be struggling to open in the wake of the COVID 19 shutdown

and higher education expects to see dramatic reductions in enrollment.

• The curricula needs a desperate update so that it is relevant to the new

situations but it is not clear this will take place.


Continued Labor Shortage and Age


Education More Important than Ever


Political Situation and Orientation

• Policy makers stuck with a no-win prospect – working to blunt the impact

of the virus meant crushing the economy and bringing the economy back

meant risking more infections and deaths.

• Deep political divisions became an even bigger issue as people took sides

on which issue was most important.

• Economic dislocation and crisis is the number one motivator as far as civil

strife and social tension are concerned. Riots and demonstrations have

exploded all over the world – long festering issues come to the forefront.

• Role of expertise has been challenged as there was frustration with the

slow progress on the virus crisis.


Role of the Medical Community

• Success in some areas have led to weakness in others. Much larger

population of elderly people and people with various health conditions that

made them vulnerable to the outbreak.

• Public health had been neglected and underfunded. Only 100 people

working to track viral outbreaks for the CDC. The role of the WHO has been

ignored.

• Hospitals were overwhelmed by the outbreak and have been trying to

anticipate the nature of future threats. Medical sector has shifted largely

towards health maintenance and that is not emergency focused.

• Decisions made by business and the political world will be increasingly

influenced by medical and health realities.


Karma


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partnering in crisis€¦ · supply chain chaos. 14 [email protected] july 22, 2020 ... home...

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