In 1935, the United States Congress passed the National Labor Relations Act, which secured effectively the right of employees to unionize and subsequently enter into collective bargaining agreements with employers. The intent of the law was to provide fair labor conditions, and increased wages. While the spirit of intent of the law was favorable, the inevitable side effect of this was that workers were protected based on payment of dues to their union, rather than the merits of their respective performance. A worker who metaphorically "mails it in" and puts forth the bare minimum effort is given basically the same compensation as a worker who is a top performer. Performance is no longer an incentive for most of these workers. As a result, companies are not able to achieve at top-tier performance, as they are not getting the most out of their respective labor forces.
In addition to labor inefficiencies, the process of collective bargaining brought about substantial pension obligations that companies will have to fund in the future. Making matters more complicated (and expensive) is an increased life expectancy of Americans overall, and advances in medical technology which also promote longevity (and, consequently, increased expense).
The environment for business created by unions has made companies which are union-heavy at a decided disadvantage in competing with non-union shops. Detroit is a glaring example of this, with the automotive manufacturing business virtually dried up, and the highest rate of poverty and unemployment in America. GM, Chrysler, and Ford all have to account for the costs of union obligations in the price of their respective automobiles. We, as consumers, pay for this with the purchase of each car we buy made by union shops. Hostess, the maker of Twinkies, was the most recent large business to fail as a result of union pressures and strikes. Concurrently, with each purchase of a simple snack cake, the cost of the union labor was included.....all of which is a cost that adds no intrinsic value to the product at the end of the day. The United States Postal Service is yet another glaring example of union inefficiency....it is my opinion that it is simply a matter of time before the Post Office is insolvent, goes bankrupt, and must be taken over by private enterprise (oh, did I mention my capstone project in grad school was an intensive study on the US Postal Service?).
The worst part of all of this? When large companies fail and their pension is declared insolvent, the Pension Benefit Guarantee Corporation is forced to pick up the tab, all at taxpayer expense. Even worse, the workers who were counting on a sound pension when they retire are now being paid pennies on the dollar for their retirement, placing additional economic strain on local welfare programs (and yes, we the taxpayers get to pick this tab up, too).
Bottom line is that business is smart, and when you are hit in the pocketbook, you learn quickly. The automotive industry, for example, has been moving vehicle manufacturing operations from the north to the south. Hyundai, Toyota, and Kia have all successfully been building cars that were traditionally imported in Tennessee, Georgia, and Alabama....all in non-union shops. They are providing good paying jobs to a local economy that welcomed the business, and producing cars that do not have the "tax" created by unions. The real tale of the tape was in 2008 during the Global Financial Crisis. Chrysler and GM were forced to accept a government bailout, while Ford chose to implement cost-cutting measures that ensured solvency. During this same time, the foreign-owned manufacturers were profitable and gained market share.
Most recently, the United Auto Workers attempted to form a union-shop in Tennessee at a Volkswagen factory. For those not familiar, for a shop to unionize, employees must approve a measure of this nature by vote. Volkswagen had taken a stance of neutrality on unionization, and publicly indicated they did not care if the shop unionized or not. When the vote took place, the UAW move was defeated, and the factory will remain non-union. Naturally, the UAW is pushing an appeal, has threatened litigation, and just about anything else you can think of. More importantly, there is extreme significance with this vote - workers in the south do not feel they require the influence of unions to earn a living wage. This is symbolic of unions in the United States overall.....they do more harm than good. There is a reason why their respective membership is shrinking. Eventually, unions will go they way of the goonie bird......
Sunday, February 23, 2014
Sunday, January 26, 2014
The Beer Sales Economic Indicator
While in grad school at the Martin V. Smith School of Business and Economics, I had the pleasure of an elective course in economics with Dr. Sung W. Sohn as my professor. Dr. Sohn's experience included being the Senior Economic Advisor in the White House, CFO of Wells Fargo, and is presently on the board of directors of Forever 21 (his page is here). Indeed, it was a tremendous opportunity to learn from an economist such as him.....
Dr. Sohn taught us an interesting economic indicator that pretty well measures manufacturing growth....and this rather peculiar measure is that of beer sales. At first glance, this seemed odd....why would beer sales be an indicator of anything? The reason is quite simple - demographics of the typical beer drinker. Historically, beer drinkers tend to be the working class types, that for the most part, represent the middle class of the United States economy. Dr. Sohn provided a chart showing progressive increases of beer sales, which concurrently, seemed to follow favorable reporting of growth in the manufacturing sector.
Now, at face value, this indicator seems to make sense.....or does it? My main issue with this indicator is that it is nearly impossible to differentiate the beer consumption that takes place in restaurants (restaurant dining is a sign of economic prosperity, and a decrease in dining out is an indicator of weaker economic times) versus beer consumption in a residence (which tends to take place in lieu of dining out). So, perhaps looking at restaurant dining may be a more accurate indicator of current economic situations in the United States?
What makes things even more complicated is the relatively recent consolidation of several of the major brewers in the world. Anheuser-Busch merged with InBev a few years back, and now their earnings and growth are somewhat clouded with growth and situations in other markets (specifically Asia). Corporate profits could show a relatively stellar year for overall growth, but it becomes increasingly more difficult to measure the domestic beer sales as an economic indicator.
Another monkey wrench that has been thrown into the mix is the phenomenal growth of craft beers. These beers have enjoyed a growth rate of 12-15% annually in the past few years, and could be a relative offset of the traditional beer sales numbers. What makes these beers so different is the nature of them - smaller batch brew, and tend to be substantially more expensive (Firestone Walker is my personal favorite). Concurrently, the growth of the craft beer segment tends to indicate some degree of economic prosperity, as they tend to be consumed by those who are more affluent.
In my opinion, the major tell-tale indicator comes back to profits......in a recent article by Stephen Simpson of the Motley Fool, 70% of SABMiller profits come from emerging markets, in places such as Latin America. 3Q2013 growth was lower than expectations, and declines were posted in North American markets. The indicator of decline in North America tells me pretty much what I expected to learn.....the growth of the beer industry overall is being masked by substantial growth in foreign markets, and the macro environment of North America is still in a state of decline. While payroll numbers for December showed a .3% gain, this can largely be attributed to seasonal work during Christmas that is experienced every year.
2014 will be a very interesting year, with the talk of the Fed tapering QEIII, and the expected impact to the stock market resulting. In the first three weeks, we have seen some substantial losses on Wall St, with investors taking the profits they made last year. With president Obama's continued banter about income inequality and redistribution, rather than focusing on stimulation of the business sector, the current administration cannot be counted on to create the favorable environment needed for sustained economic growth. I won't even get started on the mess that Obamacare has created and I expect to continue to create.
In conclusion, I don't expect a strong year of performance for domestic beer sales. There is definite proof that there is a correlation between economic performance and beer sales, but the economic indicators are reversed this time - I don't see the growth happening in the United States, and therefore, don't see the beer sales increasing.
Dr. Sohn taught us an interesting economic indicator that pretty well measures manufacturing growth....and this rather peculiar measure is that of beer sales. At first glance, this seemed odd....why would beer sales be an indicator of anything? The reason is quite simple - demographics of the typical beer drinker. Historically, beer drinkers tend to be the working class types, that for the most part, represent the middle class of the United States economy. Dr. Sohn provided a chart showing progressive increases of beer sales, which concurrently, seemed to follow favorable reporting of growth in the manufacturing sector.
Now, at face value, this indicator seems to make sense.....or does it? My main issue with this indicator is that it is nearly impossible to differentiate the beer consumption that takes place in restaurants (restaurant dining is a sign of economic prosperity, and a decrease in dining out is an indicator of weaker economic times) versus beer consumption in a residence (which tends to take place in lieu of dining out). So, perhaps looking at restaurant dining may be a more accurate indicator of current economic situations in the United States?
What makes things even more complicated is the relatively recent consolidation of several of the major brewers in the world. Anheuser-Busch merged with InBev a few years back, and now their earnings and growth are somewhat clouded with growth and situations in other markets (specifically Asia). Corporate profits could show a relatively stellar year for overall growth, but it becomes increasingly more difficult to measure the domestic beer sales as an economic indicator.
Another monkey wrench that has been thrown into the mix is the phenomenal growth of craft beers. These beers have enjoyed a growth rate of 12-15% annually in the past few years, and could be a relative offset of the traditional beer sales numbers. What makes these beers so different is the nature of them - smaller batch brew, and tend to be substantially more expensive (Firestone Walker is my personal favorite). Concurrently, the growth of the craft beer segment tends to indicate some degree of economic prosperity, as they tend to be consumed by those who are more affluent.
In my opinion, the major tell-tale indicator comes back to profits......in a recent article by Stephen Simpson of the Motley Fool, 70% of SABMiller profits come from emerging markets, in places such as Latin America. 3Q2013 growth was lower than expectations, and declines were posted in North American markets. The indicator of decline in North America tells me pretty much what I expected to learn.....the growth of the beer industry overall is being masked by substantial growth in foreign markets, and the macro environment of North America is still in a state of decline. While payroll numbers for December showed a .3% gain, this can largely be attributed to seasonal work during Christmas that is experienced every year.
2014 will be a very interesting year, with the talk of the Fed tapering QEIII, and the expected impact to the stock market resulting. In the first three weeks, we have seen some substantial losses on Wall St, with investors taking the profits they made last year. With president Obama's continued banter about income inequality and redistribution, rather than focusing on stimulation of the business sector, the current administration cannot be counted on to create the favorable environment needed for sustained economic growth. I won't even get started on the mess that Obamacare has created and I expect to continue to create.
In conclusion, I don't expect a strong year of performance for domestic beer sales. There is definite proof that there is a correlation between economic performance and beer sales, but the economic indicators are reversed this time - I don't see the growth happening in the United States, and therefore, don't see the beer sales increasing.
Subscribe to:
Posts (Atom)