Plavecsky's Ponderings By Jim Plavecsky
by Jim Plavecsky
May 7th, 2020

Make Your Own Recovery

As governments begin the process of reopening the economy, it almost feels like the aftermath of a tornado. Just when everything was going so well, an unexpected storm comes out of nowhere and now we are standing—dazed and confused—simply wondering how long until things get back to normal. Well, Campbell Harvey, a professor with Duke University who has a perfect record for calling recessions, is predicting that this one will be over by the end of this year. Harvey is the mastermind behind the predictive power of the inverted yield curve. Because the yield on the three-month Treasury bill was higher than the yield on the five-year Treasury note for the entire second quarter of 2019, Harvey was already calling for a mild recession in 2020 when the virus was still a twinkle in a Chinese bat’s eye. You see, Harvey first identified the inverted yield curve’s predictive power in his 1986 doctoral dissertation at the University of Chicago. So, this biological event just exacerbated what Harvey was already calling for. That “inverted yield curve” had been the harbinger of the previous seven recessions.

So why does Harvey think we will be in the clear by the end of the year? “It’s a biological event, and the solution is also clear: another biological event,” he says. Harvey has done some research on the status of vaccine development, and he thinks a solution is coming quicker than we think. Check out this article by Howard Gold.

So how are door and window companies currently faring in this aftermath brought on by an unprecedented business shutdown? I am finding a mixed bag out there. I have customers that are down 20-30%, while others are actually up over last year. What is driving these differences? Well there are several factors.

  1. Some manufacturers are more vulnerable to labor issues. It was difficult enough to get workers to show up before the pandemic. Now they are being paid more to stay home. A new Federal aid package is paying an extra $600 per week to every person who receives an unemployment check. A recent article by Anne Wallace Allen examines the unintended consequences of this legislation and its effects on the struggle of businesses to maintain an adequate workforce. So, when it comes to the door and window industries, I am seeing that the more automated a company tends to be, the less this issue impacts their daily operations. Workers in an automated facility are spread out more within the plant as automated conveyor systems are employed to move work in process, so a “COVID-19-safe” work environment is more easily maintained. The other factor impacting labor shortages is loyalty. Some companies simply do a better job of inspiring loyalty among their workers. I know of a certain company in Kentucky (and not a small one) where the owner personally knows each and every employee and greets them on the factory floor each and every day as he makes his rounds from station to station. Granted, this would be from 6 feet away under current protocols, but you get my point. Also, companies that provide matching 401K programs, bonuses and are flexible with work schedules will have employees that feel more vested in the company’s success. Yes, these programs cost money but pay huge dividends when it comes to inspiring loyalty.
  2. Some companies have a sales team that is trained to pounce on opportunities. For every manufacturer that is struggling to make shipments on time or make them at all, due to mandatory plant shutdowns, employee shortages, or component delivery issues, there is another hungry company with an aggressive sales team ready to fill that spot in the market distribution channel. So, if you are forced to shut down production for weeks at a time, or your lead times are extended because you cannot staff adequately, or you are holding up shipments due to a shortage of critical components—it doesn’t take long for your competitors to step in and take business away from you if they are in a more advantageous position.

The bottom line is that when the economy is booming, everyone is busy, and it is not just a question of growth. Rather, it’s a question of how much growth. But when the going gets tough, it exposes our strengths and weaknesses. Companies that have chinks in their armor will feel the pain, while those that have superior weapons in their arsenals will prevail.

Where does your company stand? It is time to reassess and adapt or feel the pain. You cannot simply wait for a recovery to happen, even if we think it is coming soon. A lot can go right or go wrong before the end of the year. It’s imperative to shore up your weaknesses while capitalizing on your strengths. You make your own recovery!

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