Miles’ Letter Q-2 2019

Posted by Jim Miles, Director – Engineering and Research

The Business Cycle – cycle – cycle

Based upon the most recent Business Roundtable survey of CEOs, it looks like a self-fulfilling prophecy is going to take hold. Worries about the global economy have infected US business execs to a point that, despite strong order books and consumer confidence, they think the US economy is going to slow down. This has impacted the Federal Reserve Board which just announced it would hold off on interest rate hikes for the balance of the year. That, of course, signaled Wall Street, which impacted stocks, which confirmed worries of the CEOs who are concerned about lower economic growth. Getting dizzy yet? (I have to tell you, in the back of my conspiracy theory mind, I wonder if the Fed did what it did because President Trump yelled at them the last time they increased interest rates.)

Possibilities for Reversing the Trend

The overall effect of this “slow-down” view is business are becoming more cautious and more risk-adverse. When that happens, spending tends to slow, which in turn leads suppliers to slow their own business models. The net effect will impact consumers (whose jobs are being similarly slowed down [e.g. less overtime, and smaller paychecks]), and consumer confidence will erode. What global moves are likely to change this course? Well, Brexit could miraculously resolve itself on a positive note which could provide an uptick from Europe. The Chinese government could decide that their economy needs to grow faster and infuse more capital. Or, tensions in the Middle-East and South America could ease. My guess is that these events, for the most part, are unlikely and we will see a cooling economy for the balance of the year. And before you ask, there is nothing our politically polarized government will do to change this even if a solution was obvious to them.

Slow-down Impacts

We are already seeing the impact on the employment front. In the automotive sector, as we have said before, the focus is all about technology and innovation. We do not see any additional new vehicle launches being announced. I would not be surprised if the next big news will be a Chinese auto maker’s announcement that they will be building an assembly plant in the US. That may spur some movement internally, depending on which SUV is being built here. There may be some hint of this in how the Chinese suppliers are posturing, but I don’t have any hard data to support that.

For now, the name of the game will be to make manufacturing organizations work as effectively as possible. We see continued churn at the mid to upper management levels and that means opportunity for some and challenges for others. I suspect that there will be significant restructuring going on as we move into the third and fourth quarters this year, anticipating slowing business conditions. Given that prediction, I’d say now is a good time to evaluate costs and set contingencies. For those who are interested in staying at the front, start picking key employees that need to be retained and preemptively making sure they know how loved they are.

Tip For the Quarter

My thought for the quarter as it relates to attracting top talent is simply “balance!” By that I mean we must balance the vetting process with the need to engage the talent so they will want to come to us. The interview and selection process (vetting) must start with a clear understanding of the role that needs to be filled (I know many of my friends in engineering leadership will cringe to hear it, but a job description is needed, and not just one written by HR and pulled out of either archives or a book of job descriptions. I can’t tell you how many searches I have started only to find that what was on the “job description” had little to do with what was really needed or wanted. Take to trouble to do the following short exercise: 1) define the problem(s) that need(s) to be solved. 2) write down the three critical skills or experiences needed to address the issue(s). 3) be realistic about how much experience is going to be needed and 4) look at the people you already have at that level, look at their pay, and add ten percent, because that’s probably what it will take to hire the person you described.

Once you have done this, figure out how you are going to interview a person and know they have the skills or experience you are looking for. Behavioral questions are often going to give you answers (and not just the resume). Make your list of questions and then ask yourself this one: “Why should a quality person leave the job they have (probably with a competitor) and come to work for you?” You need to fit that little sales pitch into the interview as well because IT’S NEVER JUST ABOUT MONEY!

Sorry to have gotten a bit preachy this quarter but I’ve seen recent situations where the vetting process must have been invented in some back room by folks carrying rubber hoses. Have a great quarter and try to stay out of the depressing cycle that seems to a favorite topic of the news services, and remember, if you can’t be kind, at least be vague.

Cheers!