Recovery or Re-Recession

The press seems to have a surge in articles about the slowing recovery, the stalling recovery, or the recovery that is beginning to look recessionary all of a sudden. Some pundits and economists think we are headed for a double-dip recession. Others, the majority it seems, believe we are in for a long and bumpy recovery.

Another view, in light of our recent blog posting on common cause and special cause variation, is that the structure of our economy has changed… perhaps permanently. We may emerge from this looking more like a European country like Italy, England, and, hopefully not, Greece.

• Since 1970, we have lost manufacturing jobs and become more of a service economy


• We were THE marketplace of the world. This may no longer be the case


• The balance of trade


• The national debt


• Our lack of personal savings


• The emergence of what might be a permanently unemployed class

This is opinion. This is a fear. The question is whether it is true?

Morgan-Stanley 7/2/10: There's no mistaking the recent string of weaker data, capped by the disappointing 83,000 June gain in private nonfarm payrolls and dip in the workweek. But the data certainly don't validate market fears of a 1-2% second half, much less a double-dip recession, in our view.

Money Morning 6/28/10: Most textbook economists say that the U.S. economy is engaged in a broad-based recovery. But while there's a consensus that there's no "double-dip" recession on the horizon, the evidence suggests the nation's economy is headed for a slowdown in the second half of 2010. The reason: In a market that derives 70% of its growth from consumer spending, the last half of this year will be all about those consumers - and about the economy's inability to generate enough jobs to keep the nation's cash registers ringing.

NPR 7/2/10: Concern that the U.S. economic recovery is faltering has ignited a furious political debate over how the government should respond. Democrats are arguing for more stimulus. Republicans say reducing the federal deficit is the cure. Both argue the other's medicine could send the country back into recession — or depression.

Worry? Don’t worry? The debate is not just for economists. In the real world, in real businesses, we need to plan demand, supplies, and capacities. Will Christmas 2010 be like 2009, 2008, 2007 or maybe even 2006? Orders have already been placed and we do not know. We think we know. Is the glass half full or half empty?

Most demand plans are based on history. This assumes that the future will behave like the past and there have been no special cause variation in the system, no shocks. Unfortunately, we are no longer able to enjoy this luxury. Though the past is an important element in the demand planning process, it is dangerous to wholly rely on it for forward looking decision making.

If demand planning is the process that connects the demand function to the supply function, today’s environment dictates a demand planning process that is enhanced with the following key initiatives:

1. Intensive data analysis and supply chain integration. We obviously believe in the power of an integrated forecasting, business intelligence, and trend analysis approach to elevate the quality of demand planning. Additionally, we advocate the sharing of data from customer to suppliers to promote collaborative decision making and information sharing.


2. Formal sales and operations planning processes to coordinate decision making across functions. The entire organization must work in concert to assure not only customers are served at a high level but are done so in a financially beneficial manner to the company. An organization has a multitude of information residing within their personal. Extracting this information and organizing it in a manner that leads to good decision making is a competency that must be learned and practiced.


3. Incorporate data from external sources such as economic data and other market intelligence and supply chain trends. There is a plethora of free data and analysis on the web. The key is finding the right pieces of information that correlate to your business. If done correctly, you will start seeing trends in external data that are leading indicators in your business. Further, this data may uncover opportunities or forecast impending costs if acted upon may lead to more profit and cash in the future.

As many of you already know we regularly Tweet about economic and supply chain issues at @demandcaster. In the coming months we are going to formally launch a market intelligence service to supplement our existing demand planning and supply chain optimization services. If you are a DemandCaster client that is subscribed to a premium support package, starting in September you will receive a market analysis specifically designed to meet the dynamics of your industry. Our intent is to provide an added layer of intelligence to enhance your demand planning process. In addition, we will be blogging about economic issues as part of our Supply Chain Physics blog.

We are in a period of ongoing uncertainty that will remain for some time to come. We do believe that the structure of the global economy has permanently changed and will continue to evolve and morph in a rapid manner. Organizations that are nimble and are able to effectively harness the plethora of available data and information will be the winners. We plan on being the catalyst to ensure our clients stay ahead of the curve.