{"id":1852,"date":"2018-01-05T15:36:31","date_gmt":"2018-01-05T15:36:31","guid":{"rendered":"https:\/\/www.certitrek.com\/nlpa\/?p=1852"},"modified":"2021-03-29T02:25:42","modified_gmt":"2021-03-29T06:25:42","slug":"overheated-economy-means-procurement","status":"publish","type":"post","link":"https:\/\/www.certitrek.com\/nlpa\/blog\/overheated-economy-means-procurement\/","title":{"rendered":"What An Overheated Economy Means For Procurement"},"content":{"rendered":"<p>A couple of weeks ago, I blogged about\u00a0<a href=\"https:\/\/www.certitrek.com\/nlpa\/blog\/will-procurement-get-insanely-busy-impending-u-s-tax-cut\">how the Trump administration tax cut would impact procurement<\/a>.<\/p>\n<p>A related potential development is the possibility of the U.S. economy overheating in 2018.\u00a0 The fact that the Dow Jones Industrial Average closed above 25,000 for the first time ever just yesterday only serves to reinforce this possibility.<\/p>\n<p>A good economy is characterized by consumers having money, consumers having confidence, and consumers having good experiences that keep\u00a0them spending.<\/p>\n<p>When unemployment declines, people have jobs.\u00a0 When people have jobs, they have money to spend.\u00a0 When people spend money, businesses produce more products and services.\u00a0 When businesses produce more products and services, they spend more with suppliers.\u00a0 When businesses produce more products and services and spend more with suppliers, they all hire more people.\u00a0 When businesses and their suppliers hire more people, the unemployment rate drops further, encouraging more consumer spending and multiplying all of the positive after-effects.<\/p>\n<p>It\u2019s an upward spiral.\u00a0 So, why would it ever stop?<\/p>\n<p>Well, as the scientific law says, all good things must come to an end.<\/p>\n<p>In the economy, there is a breaking point.\u00a0 There is a point where businesses cannot find enough\u00a0resources to support the increased amount of products and services that confident, well-compensated consumers are demanding.\u00a0 Those suddenly scarce resources include qualified people, production capacity (e.g., space, equipment that needs to be built by qualified people, etc.), and available suppliers.<\/p>\n<p>So, the following things start happening:<\/p>\n<ul>\n<li>Businesses start raising prices<\/li>\n<li>Businesses deliver later than promised<\/li>\n<li>Businesses increase their lead time<\/li>\n<li>Businesses have to cancel sales orders due to inability to fulfill them<\/li>\n<li>Businesses have to hire employees and suppliers with less talent than they are used to thereby resulting in decreases in quality and service<\/li>\n<\/ul>\n<p>So, at that point \u2013 where the economy becomes\u00a0<em>overheated<\/em>\u00a0rather than\u00a0merely hot \u2013 those impacts start a new spiral.\u00a0 Suppliers fail to meet timelines and other standards.\u00a0 Production and projects fall behind.\u00a0 Things don\u2019t get done.\u00a0 And the economy feels the effect.\u00a0 Consumer confidence declines.\u00a0 Business spending is restrained.<\/p>\n<p>Once business spending is restrained, jobs are cut.\u00a0 Once jobs are cut, consumer spending declines and all of the positive aspects of healthy consumer spending unravel.\u00a0 That usually results in an economic recession, which is commonly defined as two consecutive quarters of negative economic growth as measured by a country\u2019s Gross Domestic Product.<\/p>\n<p>There is a fine line between an overheated economy and an economy in recession.\u00a0 It\u2019s good to keep an economy hot, but not good to allow an economy to overheat.<\/p>\n<p>There are ways that governments can keep an economy from overheating.<\/p>\n<p>One way is to raise the federal funds rate (used in the US) or the equivalent (outside of the US). Doing so results in higher interest rates that banks charge for loans, which discourages the propensity for business investments that heat up an economy. The US government has been raising the federal funds rate since late 2015.\u00a0 Obviously, it is striking a good balance because the economy continues to grow, but hasn\u2019t overheated.<\/p>\n<p>Conversely, there are ways that governments can stimulate a cold economy.\u00a0 One of the most popular of those ways is through tax cuts.<\/p>\n<p>Oddly enough, the Trump administration\u2019s tax cut mentioned earlier comes at a time when the economy is hot, not cold.\u00a0 Tax cuts put\u00a0more money into play for business and consumer spending.\u00a0 Though I definitely feel that the taxes in the US are too high, this is actually one time where we don\u2019t really\u00a0<em>need<\/em>\u00a0a tax cut (though it\u2019s certainly nice).<\/p>\n<p>So, that leaves us with a critical question:\u00a0 Will the Trump administration\u2019s tax cut push the economy past its boiling point?<\/p>\n<p>Time will tell.\u00a0 But, in procurement, we have a unique opportunity to observe the leading indicators of an overheating economy:\u00a0 rising prices, increasing lead time, strained supply base capacity, decline in supplier talent, etc.<\/p>\n<p>Keep an eye on those things, my procurement friends!<\/p>\n","protected":false},"excerpt":{"rendered":"<p>A couple of weeks ago, I blogged about\u00a0how the Trump [&hellip;]<\/p>\n","protected":false},"author":13,"featured_media":1853,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[1],"tags":[],"class_list":["post-1852","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-procurement"],"yoast_head":"<!-- This site is optimized with the Yoast SEO Premium plugin v19.4 (Yoast SEO v19.13) - 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