Economist hypothesizes the “deflationary meltdown has past.”

The Governor’s 3^rd Annual Utah Economic Summit was held in Salt Lake City on Monday, March 30, 2009. The Summit featured some amazing speakers including Governor John Huntsman, Wells Fargo Executive Vice President/Economist Dr. Kelly Matthews, and Pixar/Disney Animation Studios President Dr. Ed Catmull. While all had great speeches, Matthews’ message was particularly impressive and it was reassuring hearing good news about the economy as he put forth his hypothesis that the “deflationary meltdown has past.”  Matthews went on to make a compelling argument to support his hypothesis.  

 

Matthews proceeded to ask what has changed in the economy that would account for the approximate 20% growth in the S&P in recent weeks?  He then answered his own question by stating that the growth in the S&P could be explained with three events.

The first significant difference he offered was the fact several major financial institutions (i.e. Citigroup and Bank of America) operated at a profit during the first two months of 2009 (4 & 7).  This dramatic turnaround came after both institutions had received an infusion of federal bailout money in late 2008. Citigroup received $25 billion in October and $20 billion in November (3).  While Bank of America was the recipient of $15 billion (6).  Matthews contends the positive news of profits posted by Citigroup and Bank of America is creating some expectation among investors and the public in general; that the worst has past.  Please note, Matthews was not implying that the bailout funds were responsible for the institutions posting a profit.  He was simply stating the fact that by generating a profit for the first two months of 2009, the positive impact on the morale of investors has been significant.

 

The second point Matthews offered in support of his hypothesis is that consumer spending has leveled off in the first two months in 2009.  Matthews was careful to say that consumer spending had not increased; rather he indicated that it was no longer continuing to decrease (2 & 8).  While Matthews said that he expects more job losses in coming months, he also stated he expected the job losses would end as soon as consumer demand and the existing supply reaches equilibrium.

 

The third significant event Matthews offered was the action of the Federal Reserve on March 18, 2009.  By purchasing $1 Trillion dollars in Treasure Bonds and Mortgage Securities, the Fed’s action reduced the cost of long-term debt (1).  According to Matthews, these actions had directly aided in the edging down of long-term interest rates as evidenced by drops in the 30-Year mortgage rate to 4.85% and 10-Year Treasury note yield to 2.72% (as of March 27, 2009).  The 30–Year mortgage rate is now at the lowest rate in approximately 50 years (5).

 

Many in attendance commented that Matthews’ message was both uplifting and well thought out.  After returning to the office after the Summit, this author and Lean Sigma Champion set out on a mission to independently verify the items Matthews put forward as fact.  The references and citations included in this post are the sources located which collaborate facts set forth in Matthews’ hypothesis.

 

So is Matthews’ hypothesis correct when he proclaims the “deflationary meltdown has past”?  Only time will tell, but after researching the facts offered in support of his hypothesis I agree with him and believe that the “deflationary meltdown has past.”

 

 

 

References

 

1.     Andrews, Edmund L. (2009, March 18). Fed plans to inject another $1 trillion to aid the economy. Retrieved April 3, 2009, from The New York Times Web site: http://www.nytimes.com/2009/03/19/business/economy/19fed.html?_r=2&hp

 

2.     Jake (2009, March 27). Personal consumption holding steady. Retrieved April 3, 2009, from Economopicdata Web site: http://econompicdata.blogspot.com/2009/03/personal-consumption-holding-steady.html

 

3.     Lagorio, Juan (2008, November 26). Citigroup bailout slammed by New Yorkers. Retrieved April 3, 2009, from Reuters Web site: http://www.reuters.com/article/marketsNews/idUSN2636427520081126?pageNumber=2&virtualBrandChannel=0

 

4.     Lepro, Sara (2009, March 10). Dow ends up nearly 380 on Citigroup profit news. Retrieved April 3, 2009, from The Huffington Post Web site: http://www.huffingtonpost.com/2009/03/10/stocks-shoot-higher-on-ci_n_173459.html

 

5.     Lewis, Holden (2009, March 26). Mortgage rates drop to lowest since the '50s. Retrieved April 4, 2009, from Bankrate.com Web site: http://www.bankrate.com/finance/mortgages/mortgage-rates-drop-to-lowest-since-the-50s.aspx

 

6.     Snow, Mary (2008, December 23). Where's the bank bailout money. Retrieved April 3, 2009, from CNN.Com US Web site: http://edition.cnn.com/2008/US/12/22/bailout.accountability/

 

7.     Unknown, (2009, March 13). Bank of America expects 2009 profit - Lewis. Retrieved April 3, 2009, from Ub News Web site: http://ub-news.com/news/bank-of-america-expects-2009-profit-lewis/1338.html

 

8.     Unknown, (2009, March 27). Savings rate continues to be high. Retrieved April 3, 2009, from The Wall Street Journal Web site: http://online.wsj.com/article/SB123815632294556303.html

 

 

 

 

 

Post Author: Royce Williard

copyright 2009, The Williard Group

 

When are you done with Continuous Improvement?

 

Recently an individual who just witnessed several lean sigma project reviews asked, “When are you done with continuous improvement”?  The discussion that followed is worth summarizing to reinforce the idea that continuous improvement is just that, continuous.

 

My initial response was that not only must a company change; it must change faster than its competition.  Most everyone would all agree that companies are competitive and all want to be number one in their field.  Assuming that as a fact, the non-field leading companies are striving to improve to over-take the leaders.  Should the up and coming companies change and improve faster than the leaders, they will eventually over-take them. Without change, even companies that are number one in their field will eventually be surpassed. 

 

One person in the discussion likened this to a scene in the 1990 movie “Days of Thunder”, starring Tom Cruise and Robert Duvall.  The individual described one scene in which the pit crew chief (Duvall) was talking via radio to the racecar driver (Cruise).  The pit crew chief was complaining to the driver that he was going too fast and abusing the equipment.  The driver responded that he had not sped up, but everyone else had slowed down. By simply going a little faster than the competition, he finally passed all of those in front of him to become number one; winning the race.

 

Continuous improvement is a marathon and this marathon has no end, simply minor course adjustments as you continue in the race. 

 

We are in a changing and challenging time.  Many companies will be tempted to retrench and cut expenses by blindly cutting costs including eliminating their continuous improvement activities.  This is not the time to be timid, this is the time to aggressively attack waste by pursuing continuous improvement.  Less non-value added waste equals more profit.

 

For a company to be successful, they must have a strong culture that promotes continuous improvement.  They must strive to be better than they were six months ago while realizing that they are not as good as they will be six months from now.

 

I’ll close this post as I closed the discussion, with one of my favorite business quotes. “When the pace of change outside the organization is greater than the pace of change inside the organization, the end is near.”   John R. Walker

 

 

Post Author: Royce Williard

Copyright 2009, The Williard Group

Go To Gemba!

In the past few posts I have discussed several continuous improvement methodologies. However, it is human nature to return to the original, less productive process unless the new behavior is reinforced and becomes engrained in their business culture. One management system that is required to maintain the improvements that you have worked so diligently to implement is a gemba walk. 

 

Gemba is a Japanese term that means loosely, where the work is taking place. I was once told by my Sensei that the Japanese police refer to the scene of the crime as gemba.  A gemba walk is a management technique that has the leader walk a prescribed pattern that follows the flow through their area of responsibility.  It requires the leader to actually go where the work is accomplished to see and understand first hand the current state of their business.

 

The gemba route should be documented with a map on a standard work document including a listing of the items within each area that are checked.  Documenting the gemba walk is a critical component that is often over looked.  Documentation ensures consistency and allows for a transfer of knowledge when the responsible leader is not available to complete their routine. In the ideal situation the gemba walk will occur at the same time(s) every day. 

 

As the leader walks the prescribed route, they look for and make note of safety issues, compliance with standards, and disruptions to flow.  In addition, the leader should use the gemba walk as an opportunity to reinforce to the staff what is important to the business. When the leader notes an issue, they should ask questions to the staff, which, in turn helps them, discover for themselves why the issue needs to be addressed.

 

How often should a leader perform their gemba walk?  The answer is simple and varies by situation. It could be once a day, it could be twice a day, and it could be more. Leaders need to complete their gemba walk as often as is necessary to understand the current state of their business.

 

A gemba walk is the formalized equivalent of MBWA  (Management By Walking Around).  Many leaders walk the workplace daily as a matter of practice. A gemba walk simply formalizes and documents their daily walk.  It is irrelevant if you call the gemba walk by the Japanese term or some term you have created locally. The important issue is that the practice is formalized, documented, and occurs at the prescribed frequency.

 

Post Author: Royce Williard

Copyright 2009, The Williard Group