Where will it come from in the next decade?
Traditionally, wealth is created, consumers spend more, trade markets further develop, and government spends.
Unfortunately, all of the aforementioned are in precarious spots as we head into the next decade.
Profits and tame inflation have enabled the economy to move forward, and this has largely been with the help of increased efficiency from technology. To what extent can our current technological revelation prop up our production? Again, expect this to temper in coming years.
Where does this lead us?
Companies, and their continued evolution into leaner, more efficient, productive engines will drive economic growth in the next decade. We are already seeing this through recent changes within corporations. McDonald’s has developed their app, and made their in-dining experience more enjoyable. Their partnership with Uber Eats furthered their profits. Dominos is the most popular app in the food space, and through marketing, the company has become a staple in fast food pizza.
We have begun to see companies like Procter & Gamble and United Technologies become more efficient in a different way. Both companies became leaner, and in turn became more successful. P&G cut many of their brands, and focused attention on a few of their staples, like Tide and Crest. United Technologies spun off parts of their business and maintained their most profitable. We saw the same move in America’s largest chemical company, Dow DuPont.
Scandal-ridden companies, like General Electric and Wells Fargo, are forced to do this. GE has begun examining every aspect of their business, top to bottom, left to right, and is carefully evaluating what should stay, go, or be improved. Wells Fargo is forced to do the same. Both companies will come out ahead, and both will do more for Corporate America. Their examples will be replicated by countless other competitors within their industries. JP Morgan, Bank of America, and Citibank are patiently watching every move Wells Fargo makes, and you can guarantee things that work at Wells, will pop up in the others. The same is to be said for industrial giants that compete with GE.
Ben Franklin once famously said Join or Die when referring to the Colonies unifying against the Brits. It seems as if the new motto for an American conglomerate is Evolve or Die.
Well, that evolution isn’t the technological adoption they were forced to take on in recent decades. It is now an evolution from the inside. One that will make them even leaner, efficient, and ultimately more profitable.
There is one additional part to the story. The corporations have too much cash, and must do something about it. They largely bought back their own stock in recent years. They used the cash for mergers and acquisitions as well. Today, that dust has settled. They need new ideas to utilize their cash.
Government, especially politicians do not like when companies sit on cash, and become more profitable with efficiency. Efficiency likely means layoffs, or the modern way of doing it which is simply not filling a job once vacated. Leaders will catch on, and the folks running these companies know it. How do they avoid the wrath of regulation, while still expanding profits at the same time? Well, they increase benefits they provide their employees. This keeps politicians out of their offices, keeps Wall St happy through increased efficiency, and boosts company morale with added benefits for employees.
The S&P 500, or at least the top 100 in this group have massive balance sheets. Some of which are bigger than GDP of entire nations. These companies have become incredibly powerful since 2008, and especially since the tech revolution of the 90s. They know they need to maintain proper leadership to keep regulators out. They know they will keep Wall St happy by finding profits from within but frustrate politicians. They know there needs to be balance. The balance will be dangling bigger and better carrots in front of current employees to keep them, and politicians happy.
Expect higher minimum wages, increased health and retirement perks, as well as added additional, new benefits. Expect most of these top companies to further their community involvement, and philanthropic endeavors. They know what they need to do, and these CEOs will tilt the scales just right to ensure they satisfy both sides of the aisle, while making sure their employees stay.
The next decade can seem really dire when you look at demographics, government debt, the rise of populism, low interest rates, and snarling inflation. You’re looking through the wrong lens. The invisible hand is doing just fine, and as long as government stays out of the way, expect these titans to move the global economy, and especially the American one into another great ten years.
Phil Your Day 