Okay, forgive me for being anonymous for this one.
Background: smaller cabinetry shop (let's call it a million a year in sales), very diverse clientele both regionally and economically but all on the west coast in one of the hotter markets, extremely loyal clientele, closure rate above 90%, usually backlogged from 3-6 months, clients never been happier and we know our pricepoint and we are unbeatable.
In fact, our clients usually book us before they have a permit as it is tough to get onto our schedule- we turn a lot of work away. Even in 07/08/09 we never had less then two months of backlog and usually more.
Because of the lead times to get on our schedule it means we are usually out in front of most slow downs or uptakes because our lead time is so long and folks get us booked (and honestly, they don't have a problem with booking us that far ahead).
But I've had a few builders recently pull back and are getting nervous. Also the same with retail clients.
Technically we have a ton of houses scheduled to build this winter but RIGHT NOW the phones and emails have never been slower and I'm starting to see folks think twice about moving forward.
Yes, China and commodities are tanking. Greece is kaput. Brazil and many others are teetering. We are down seven days in a row. I have always watched the financial markets close and to be honest I have a bias that it's going to get ugly this fall. So I want to hear from other folks with their ear to the ground, hopefully you can prove me wrong. My sales reps are still optimistic but they lack the enthusiasm in their answer they had just a few months ago.
So, are you seeing the slowdown? Have we peaked? If so are we heading down at rocket speed or are we hitting a nice flat ceiling for awhile? What do you say?
I think people are getting nervous about an interest rate hike from the Fed, which will be minuscule.
However something will be the catalyst to pop the bubbles the Fed has been blowing for 6 years.
The demand has been from low interest rates, the problem is that it has been a synthetic demand. The demographics are there for a real demand but there has been "regime uncertainty" so jobs are not being created and they have staved off the downturn in the business cycle which should have happened 6 years ago. Instead we have not had a real recovery.
Mostly it means no investment in small business. The same thing happened under FDR in the 30s, as no one knew what he was going to do next.
Right now we have had the ACA and Frank Dodd which have left investors with uncertainty about where to invest. Anecdotally I know uncertainty about the ACA cost me a large customer.
Another uncertainty is regarding the interest rates. Since the Fed has caused most economic activity over the past 6 years, whatever they do trumps other factors. That is what is looming over people's thinking right now.
The idea of regime uncertainty comes from an economist name Bob Higgs.
Other economists say there will be a slow down but just a dip.
The ISM chart doesn't show much of a drop. This is a survey of manufacturers and is quite prescient.
Another one is business investment known as the gross output chart.
Also from ITR the economists the Stiles uses say this:
Retail sales in June came in 2.9% higher than the year-ago level. This is the best year-over-year performance since January 2015. The May-to-June seasonal decline in retail sales activity (nominal dollars) was milder than each of the last three years. It was a good June. Automobile retail sales for the month were up 10.5% from the year before. All told it was a good month and portends ongoing growth for the US economy as we head through the second half of the year.
We have had a very slow year in custom furniture. The cabinet guys here are all busy as bees but we are just starting to get busy. It has been tough but we always lag the cabinet business. Have three homes ready for furniture. I just think we are in for boom and bust for another decade.
Some of them are. The reason that most aren't is they drank the Keynesian Kool Aid and are clueless. The rest aren't because picking the when part is really hard. Even Warren Buffet would be gone if not for the bailouts. But of course none of them know as much as you...
I read the news but don't think the average economist is any better @ it that the weather man guessing if it will rain next September 23rd. There have always been economic cycles, easy to predict there will be another. What it will look like, don't care, something I can't control. Keep your powder dry!
We are busy with a fairly diverse set of jobs. 6 months from now, no clue.
One of the major problems the Japanese Imperial Army faced in WW2 was they couldn't keep their powder dry. They were dug in with concrete bunkers on the Pacific Islands but they used paper cartridges and the moist air dampened the gun power.
The second problem they faced was lack of standardization. Every weapon had it's own unique cartridge. It was a Quartermaster's nightmare.
The moral of this story, as Larry points out, is you need to keep your powder dry and you need to keep your costs low.
Lowering costs provides a twofer here. Most of the activities you embrace to lower costs are in & of themselves a capacity generator. You can use cost reduction to your advantage when times are booming and when they are not.
I started getting interested in the subject when I read "Basic Economics" by Thomas Sowell recommended by Bob Buckley.
After the 2008 crash I became very interested as to how there could be such huge changes in the economy. I'm guessing a bunch of cabinet shops went out of business at this time, maybe 50% maybe more. That sort of thing does make me scratch my head.
I became more interested after the mega 800 post thread here on the WW, and learned a ton from Economics 101's posts. And realized there is something to know about this subject.
I have read a number of economics book since.
As to picking the exact when of economic events, that is very hard. But the if part is not. E.G. seeing the housing bust, the next housing bust, the next stock market bust, the great depression, that Nixon would be forced out of Bretton Woods because of the Vietnam War, that China was going to go through it's current recession, that the EU will break up and the reason why, that the US will go through another depression much worse than the Great Depression and why, that the next China will be Nigeria and why, the the US always had a slight deflation up until 1913 and why that is, why are all the commodities at historical low prices, why is there income inequality and why the last time it was this great was in the late 1920s for the same reason, why all governments end up inflating their money, etc etc
I find useful.
I would go so far as to say that much of the politics of the day are a reflection of indifference towards economics.
"Keeping your costs low"
At some point you need to violate that if you are going to advance your business. The game becomes "How, When, What." How? Spending your cash reserves, borrowing, selling something. When, given some peoples doom & gloom out look it would be never. What will happen to their business then? They and their equipment will age, gracefully? What, We all have limits, so choices have to be made. More space, new router, new marketing scheme??? My business has never been near the cutting edge, choose not to be. Call it risk avoidance. Is a slow down coming? I can't tell until it gets here. How long will it be? The last one did in a lot of shops. Mine survived, barely. The result for me was a much slower recovery than what it should have been.
Just to be clear I'm not saying doom and gloom. Down the road you bet, but not now.
""How, When, What." How? Spending your cash reserves, borrowing, selling something. When, given some peoples doom & gloom out look it would be never. What will happen to their business then? They and their equipment will age, gracefully? What, We all have limits, so choices have to be made. More space, new router, new marketing scheme??? My business has never been near the cutting edge, choose not to be. Call it risk avoidance. Is a slow down coming?"
That is the very definition of economics, and the role of entrepreneur in it.
Admittedly this subject does color one's thinking negatively. OTOH the horizon has pitfalls that have never existed in world history.
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