Limp Fries: Restaurants Join Brick-and-Mortar Retailing in Facing Economic Challenges

April 12, 2017April 12, 2017 Phillip Nones Business, Economics BDO USA, Economics, Fast Casual Chains, Fast Casual Restaurants, Restaurant Industry, Retailing, Upscale Casual

Press reports about the state of the retail industry have focused quite naturally on the travails of the retail segment, chronicling high-profile bankruptcies (most recently hhgregg) along with store closings by such big names as Macy’s, Sears, and even Target.

Less covered, but just as challenging, is the restaurant environment, where a number of high-profile chains have suffered over the past year, along with a general malaise experienced by the industry across-the-board.

This has now been quantified in a benchmarking report issued last month by accounting and business consulting firm BDO USA covering the operating results of publicly traded restaurants in 2016.

The BDO report found that same-store sales were flat overall, with many restaurants facing lower traffic counts.

The “fast casual” segment, which had experienced robust growth in 2015, experienced the largest loss of any restaurant segment in same-store sales in 2016 (nearly 1.5%), along with the highest cost of sales (nearly 31%).

Chipotle’s poor showing, thanks to persistent food contamination problems, didn’t help the category at all, but those results were counterbalanced by several other establishments which beat the category averages significantly (Shake Shack, Wingstop and Panera Bread).

The “casual dining” segment didn’t perform much better, with same-store sales declining nearly 1% over the year. By contrast, “upscale casual” restaurants reported an ever-so-slight same-store sales gain of 0.2%.

Better sales increases were charted at quick serve (fast food) restaurants, with same-store increases of nearly 1%. Even better results were experienced at pizza restaurants, where same-store sales were up nearly 5%. This category was led by Domino’s with over 10% same-store sales growth, thanks in part to its Tweet-To-Order rollout and other digital innovations. Well more than half of the Domino’s orders now come through digital channels.

What are some of the broader currents contributing to the mediocre performance of restaurant chains? Unlike retailing, where it’s easy to see how purchasing practices are migrating online from physical stores, people can hardly eat digitally. And with “time” at an all-time premium in an economy that’s no longer in recession, it would seem that preparing meals at home hasn’t suddenly becoming easier.

The BDO analysis contends that the convenience economy and the continued attractive savings offered by dining at home combine to slow restaurant foot traffic: “To remain afloat, restaurants will need to drive sales by leveraging the very trends that are shaping this evolving consumer behaviors.”

Tactics cited by BDO as lucrative steps for restaurants include expanding delivery options, and embracing digital channels in a major way. BDO reports that in 2016, digital food ordering accounted for nearly 2 billion restaurant transactions, and this figure is expected to continue to rise significantly.

Speaking personally, I think there is a glut of dining options presented to consumers across the various segments of the restaurant trade. One local example: In one stretch of highway on the outskirts of a county seat just 20 miles from where I live (population ~20,000), no fewer than six national chain restaurant locations have opened up in the past 24 months strung out along the main highway, joining several others in a string of options like exhibit booths at a trade show

There’s no way that market demand can satisfy the new restaurant capacity in that town. Something’s gotta give.

What are your thoughts about which chains are doing things right in the highly competitive restaurant environment today – and which ones are stumbling?

Trends in Economic Well-Being in the Era of Globalization

July 25, 2016July 25, 2016 Phillip Nones Business, Economics, Social Commentary Economic Well-Being, Economics, Era of Globalization, GDP, Gross Domestic Product, Nelson Nones

Some findings are surprising …

The political environment in the United States and Europe has been an endless source of fascination this year — and of course it’s been influenced by a myriad of factors.

To try to make sense of it all, how much of what is happening is due to new challenges to the social order … and how much is due to changes in economic well-being in an era of globalization?

My brother, Nelson Nones, has lived and worked outside the United States for the past two decades. His business is based in East Asia, and much of his work is done in Europe as well as in Asia and North America. I find his perspectives quite interesting and often different from the “conventional wisdom” heard here at home, because Nelson’s is truly a worldview borne of first-hand experience and observations across many regions.

I asked Nelson to share his thoughts on how globalization has affected the average person — hopefully looking beyond “perceptions” and other qualitative factors and instead focusing on hard metrics. Nelson’s analysis is insightful — and surprising in some respects. Here is what he reported:

The “Era of Globalization” covers the last quarter-century, beginning with the fall of Communism and continuing to the present day. It began with the opening of national economies which were previously barred from global trade and migration – the former Soviet Union, Mainland China, India, Brazil and others.

Major economic blocs also emerged to liberalize free trade and migration, most notably the Euro Area but also NAFTA in North America, and ASEAN in Southeast Asia.

In five of the world’s eight major regions, economic well-being has trended quite consistently during this time.

In North America (the United States, Mexico and Canada) and the Euro Area, economic well-being initially grew but peaked between 1999 (North America) and 2001 (Euro Area), and has declined ever since. North America’s well-being has fallen 22% since its peak; the Euro Area’s has fallen 20%.

By contrast, economic well-being in the East Asia and Pacific as well as South Asia regions has grown steadily. It has risen by 74% over the past quarter century in the East Asia and Pacific region, and by 68% in the South Asia region.

Economic well-being in Central Europe and the Baltics has also risen steadily after 1992, up 45% within the past 23 years.

In the remaining three regions, trends in economic well-being have been less consistent. The Middle East and North Africa declined steadily after its 2009 peak; down 7% during the last six years, and down 10% over the entire 25-year period.

The Latin America and Caribbean region peaked in 1994, and is down 15% over the past 21 years.

Bringing up the rear is the Sub-Saharan Africa region, which is down 20% over 25 years, although economic well-being grew marginally during nine of those 25 years.

Interestingly, the trend in economic well-being has been least consistent in the Russian Federation. It fell 49% between 1990 and 1998, rose 118% between 1999 and 2008, and then fell 5% during the last seven years. Overall, economic well-being in the Russian Federation rose 7% over the last 25 years.

Here’s a graphical representation of the trends noted above:

In very broad terms, what do these trends tell me?

The hands-down winners during the Era of Globalization have been the East Asia and Pacific (including China, Japan, Korea, Southeast Asia, Australia and New Zealand), Central Europe and the Baltics, and South Asia (primarily India) regions.

Not surprisingly, these regions (despite a few exceptions, like Pakistan) are generally peaceful and orderly today, abetted by the rule of authoritarian governments in many countries.

Although they profited during the first decade or so, the biggest losers during the Era of Globalization have been the North America and Euro Area regions.

One could reasonably argue that the UK’s recent Brexit vote, rising far-right sentiments in Western Europe and the popularity of Donald Trump and Bernie Sanders in the current U.S. Presidential election cycle are all recent symptoms of this underlying trend.

One could just as reasonably argue that the oil curse, authoritarianism, widespread unemployment (or underemployment), the rise of radical Islam, war and terrorism are symptoms of the persistent declines in economic well-being throughout the Middle East and North Africa during the Era of Globalization.

Nevertheless, the Sub-Saharan Africa as well as Latin America and Caribbean regions have underperformed even the Middle East and North Africa region during the Era of Globalization. Might these regions become hotbeds of significant unrest in the not-too-distant future?

Looking at things from this perspective, it becomes easier to understand the “pressure points” we’re witnessing in the political environment in the United States and Europe. I didn’t realize the degree to which North America and the Euro Area were “the biggest losers” over the past quarter century. Seeing it spelled out like this, perhaps we can have a little more empathy for the people who feel dissatisfied and who are looking for change.

How easily that change can occur — and whether it will turn out to be a net benefit — well, those are entirely different questions!

__________________

In brief, the methodology behind the analysis is as follows:

1. Data source is the World Bank World Development Indicators database, last updated 19^th July 2016.

2. Raw data is gross domestic product (GDP) per capita per year, in constant International Dollars, adjusted for purchase price parity (PPP). Use of constant International Dollars strips out the effects of inflation or deflation. The PPP adjustment accounts for differences in the cost of living within each region; GDP is adjusted down for regions having higher-than-average living costs, while GDP is adjusted up for regions having lower-than-average living costs.

3. The index for each region and year is calculated as the regional GDP at PPP, divided by worldwide GDP at PPP.

4. The graph pictured above depicts the natural logarithms of the calculated indexes for each region and year. Hence worldwide GDP at PPP is zero (0); GDP at PPP values lower than the worldwide average are negative, while GDP at PPP values higher than worldwide average are positive.

The States Where Your Dollar Goes a Good Deal Further

April 17, 2016April 17, 2016 Phillip Nones Demographics, Economics, Employment, Government, Social Commentary Bureau of Economic Analysis, Cost of Living, Demographics, Economics, Taxation

People have long suspected that many of America’s “richest” areas, based on salaries and other income, also happen to be where the cost of living is significantly higher.

Silicon Valley plus the New York City, Boston and the DC metro areas are some of the obvious regions, notorious for their out-of-sight housing and real estate prices.

But there are other factors at work as well in these high-cost areas, such as the cost of delivering goods to certain areas well-removed from the nation’s major trunk transportation arteries (think Alaska, Hawaii, Washington State and Minnesota).

And then there are state and local taxes. There appears to be a direct relationship between higher costs of living and higher taxation, too.

It’s one thing to go on hunches. But helpfully, all of these perceptions have been confirmed by the Bureau of Economic Analysis, using Personal Consumption Expenditure and American Community Survey data to do so. Rolling the data up, the BEA has published comparative figures for all 50 states plus DC pertaining to the relative cost of living.

The approach was simple: consolidate the data to come up with a dollar figure in each state that represents how much $100 can purchase locally compared to the national average. To get there, average price levels in each state have been calculated for household consumption, including rental housing costs.

Based on 2014 data, the figures have been mapped and are shown below:

So, just how far does $100 go?

The answer to that question is this: quite a bit further if you live in the mid-Continent region of the country compared to the Pacific Coast or the Northeast U.S.

In fact, $100 will get you upwards of 15% more goods and services in quite a few states. Here are the Top 10 states how much $100 will actually buy there:

Mississippi: $115.74 worth of goods and services
Arkansas: $114.16
Alabama: $113.51
Missouri: $113.51
South Dakota: $113.38
West Virginia: $112.87
Ohio: $112.11
Iowa: $111.73
Kansas: $111.23
Oklahoma: $111.23

At the other end of the scale, $100 is only going to buy about 20% to 30% fewer goods and services in the “Bottom 10” states compared to the “Top 10.” Here’s how it looks state-by-state:

DC: $84.60
Hawaii: $85.32
New York: $86.66
New Jersey: $87.64
California: $88.57
Maryland: $89.85
Connecticut: $91.41
Massachusetts: $93.28
Alaska: $93.37
New Hampshire: $94.16

Which states are closest to the $100 reference figure? Those would be Illinois at $99.40, and Oregon at $101.21.

I must say that those last two figures surprised me a bit … as I would have expected $100 to go less far in Illinois and Oregon.

Which of the state results surprise you? If any of them do, please share your observations with other readers.

The Sanders/Trump phenomenon: A view from outside the United States.

February 13, 2016February 13, 2016 Phillip Nones Business, Economics, Employment, Government, Social Commentary 2016 Presidential Election, Bernie Sanders, Demographics, Donald Trump, Economic Elites, Economics, Great Recession, Pew Research, Populism, Wealth Gap

This past Tuesday evening as I watched Bernie Sanders and Donald Trump vanquish their rivals handily in the New Hampshire presidential primary election, I received an e-mail from my brother, Nelson Nones, with his observations on “what it all means.”

As someone who has lived and worked outside the United States for years, Nelson’s views are often quite perceptive — perhaps because he is able to look at things from afar and can see the “landscape” better than those of us who are much closer to the action.

Call it a “forest versus trees” perspective.

And when it comes to the 2016 presidential election, it is Nelson’s view that the Sanders/Trump phenomenon is absolutely real and not something based on personality or celebrity — for good or for ill.

Shown below is what Nelson wrote to me.

… On the Underlying Dynamics

For context into what’s happening in the United States, the Pew Research Center’s recent report on the wealth gap in the United States is instructive.

In a nutshell, over the past 30 years Pew’s data points reveal:

Upper-income families currently represent ~20% of the total, and their wealth (measured by median net worth) has doubled.

Middle-income families represent 46% of the total. Their wealth barely changed (up 2%).

Lower-income families therefore represent ~34% of the total, but their wealth fell 18%.

Now, after the end of the Cold War in 1992 until the onset of the Great Recession in 2007, the wealth of all three groups did rise, albeit by varying degrees:

Upper-income by 112%
Middle-income by 68%
Lower-income by 30%

Here’s how they fared during the Great Recession (2007-10):

Upper-income wealth declined by 17%
Middle-income wealth fell by 39%
Lower-income wealth fell by 42%

And after the Great Recession:

Upper-income families recovered 36% of their wealth lost during the Great Recession

Middle-income families recovered none

Lower-income families lost an additional 7% relative to their wealth in 2007

So, if we assume wealth to be a proxy for the feeling of well-being, then one could surmise that ~80% of American families feel like victims today — of which nearly half feel they are still being victimized.

… On “Anger”

Are people feeling angry about this? You bet.

Who are they going to blame? The other ~20% and foreigners, of course.

Never mind the exculpatory hard data proffered by defenders of the nation’s elites revealing that big banks paid back all the bailout money they received during the Great Recession, or that bankers cannot be jailed for their alleged misdeeds unless and until proven guilty by jurors in courts of law (like anyone else), or that pharmaceutical companies’ margins on $45 billion of profit, at 12%, aren’t “quite” as obscene as they appear at first glance.

None of those facts can ever restore wealth that’s been lost and never recovered, or is still falling. When you feel like a victim, such hard data are utterly and completely irrelevant.

Both Bernie Sanders and Donald Trump are tapping into this anger with great success. As I watched both Sanders’s and Trump’s victory speeches, to vastly oversimplify, here is what I heard. Sanders essentially said:

“It’s not fair that most Americans can’t get ahead or are falling behind. I’ll expropriate money from the rich by taxing Wall Street bankers and give it to you in the form of free tuition, student debt restructuring, lower healthcare costs and single-payer healthcare!”

Trump essentially said:

“Political hacks are negotiating bad deals, letting China, Japan and Mexico take our money away from us every day. As the world’s greatest businessman, I’ll negotiate great deals fast to give you universal healthcare, and beat these countries so you get your money back – without having to share it with all those illegal immigrants!”

In my view, what both Sanders and Trump recognize is that ~80% of American families may have lost 40% of their wealth since 2007 with little or no hope of recovering it … but they haven’t lost any of their voting power.

It makes no difference that the prescriptions offered by Sanders and Trump – squeezing money from Wall Street, China, Japan and Mexico, for example – are nonsense. As a lawyer I once knew always said, “Winning isn’t everything; it’s the only thing.” To have any chance of accomplishing something useful (or not) as President, you have to win first.

… On Populism being the Winning Ticket

In this election, under present circumstances, populism is a sure winner.

The wealthiest ~20% of families (Democrats as well as Republicans) who represent the “establishment” in the eyes of the angry Sanders and Trump crowds, don’t quite smell the coffee yet.

The angry crowds are out for money this election cycle, and I believe they hold enough votes to elect one of the two populist candidates (Sanders or Trump) who is promising “money.”

… Not “experience,” “pragmatism,” “conservativism,” “liberalism,” “socialism,” “limited government,” “feminism,” “pro-life,” “pro-choice,” “pro-LGBT,” “hope,” “change,” or whatever. But money.

To protect as much of their wealth and status as they can, the elites have little choice but to scuttle their aspirational platitudes and learn to deal with it.

So there you have it — a view of the presidential election from the outside looking in. I think there’s food for thought here — and very possibly a look at where we’ll be in another nine months.

What do other readers think? Agree or disagree? Please share your observations here.

Economic Reality Comes to College Campuses

April 29, 2015April 29, 2015 Phillip Nones Economics, Education, Human Resources, Social Commentary College, College Education, College Financial Aid, Corinthian Colleges, Distance Learning, Economics, Education, Higher Education, Student Loans, Sweet Briar College, Tuition, Tuition Rates

Finally, colleges get schooled in Economics 101.

For a long time, “market forces” didn’t really apply to institutions of higher learning — at least not in the classic sense.

In a social environment where nearly everyone buys into the notion that more education is good, government and educators fostered policies where no one need be prevented from getting a college education because of lack of funding.

Accordingly, in the past several decades, loans and grants became easier to obtain than ever.

Unfortunately, one of the consequences of easy money in education was that tuitions rose at a faster rate than the economy as a whole. After all, the third-party money spigot seemed never-ending.

For a good while tuition spikes weren’t a particular concern, because it still seemed as though a college-level education was a great way to earn substantially more money in one’s career — even if racking up student loans at the outset.

But in recent years, we no longer see an automatic positive correlation between a higher education degree and the ability to earn increased income.

In the sluggish economy of the 2000s, a college diploma in the right field may well be a good investment. But with many college majors, oftentimes it isn’t.

The situation is even dicier for the many students who attend community colleges or four-year institutions but who never graduate. The chasm between their educational loans and their earning power is even more deep.

And for those students unlucky enough to attend for-profit institutions like those run by Corinthian Colleges, Inc., which is in the process of closing the last two dozen of its schools across the country, the situation is even worse.

Saddled with student debt, stuck with degrees or half-completed courses of study of dubious value, and with school credits unlikely to be transferred to other schools in order to finish their education, the situation for those unlucky students can only be described as dire.

How did we get to this place?

One big reason is that over the years, many colleges got into the habit of simply expecting sufficient numbers of students to enroll in their institutions regardless of the sticker price to attend. If anything, high tuition “list prices” were a badge of honor.

At the same time, substantial grants (essentially discounts off of the published tuition rates), together with irresistible financial aid packages, continued to attract students to private as well as public institutions of all stripes.

Running in parallel with this were lavish, ongoing projects involving the construction of fancy new dorms, state-of-the-art athletic facilities, and all sorts of other creature-comfort-like amenities to lure students to campus.

And let’s not forget another not-so-welcome outcome of this fantasyland of higher education economics – call it “degree inflation.” With so many students obtaining undergraduate degrees, their “worth” became devalued.

In this high-stakes derby, a BS degree in business is no longer enough – it has to be an MBA. A BS degree in engineering isn’t nearly as prestigious as a Master’s degree or a PhD. There’s really no end to it.

The convergence of these sobering economic and social trend lines makes it pretty clear that the “old” business model is no longer working for colleges and universities. With the economic realities of today, college administrators are discovering that, sooner or later, market forces work. And the resulting picture isn’t very pretty.

So now we’re witnessing the lowest percentage increases in tuition sticker prices we’ve seen in years, across private institutions and even some public ones as well. Bloated administrative staffs — their numbers dwarfing the number of teachers at some colleges — have finally plateaued or even begun to decline.

Being the parent of two children who graduated from college within the past five years, naturally I’ve been quite interested in these trends – and I’ve viewed them pretty close-up.

What I’ve determined is that for years, administrators at many colleges and universities didn’t see themselves as working within a market system — having to compete where market forces were at work. The often-unappealing business of being disciplined by market forces didn’t pertain to them — or so they thought.

That’s certainly not the case anymore.

And there’s another huge factor looming on the horizon: Distance learning. I’ll be here big-time before we know it … and it promises to upend the college education business model as never before.

What are your thoughts on this topic? Please share them with other readers here.

Americans and the economy as 2015 begins: Caution continues.

January 6, 2015January 6, 2015 Phillip Nones Business, Economics, Employment, Social Commentary American Economy, Bronx Cheer, Business, business leaders, Consumer Sentiment, Consumers, Economics, McKinsey, McKinsey & Company

As we’ve closed out the year 2014, more than a few people – from politicians to business leaders and business journalists – have sought to reassure us that the American economy is not only on the right track, it’s back in a big way.

But evidently, word hasn’t trickled down to “John Q. Public.” Or if it has, it’s been greeted by a gigantic Bronx Cheer.

We have the latest evidence of this in management consulting firm McKinsey & Company’s most recent annual Consumer Sentiment Survey, which was conducted in September 2014 with results released last month.

The bottom-line on consumer sentiment is that despite the recent spate of decent economic news and higher employment figures, people are still reluctant to increase spending, and thriftiness remains the order of the day.

While people don’t think things are deteriorating … they don’t think they’re becoming much better, either.

So … treading water is about all.

It’s not too difficult to figure out why sentiment continues to be so skittish. After all, median household income for Americans, adjusted for inflation, actually declined in recent years and hasn’t rebounded.

With people still feeling the earnings squeeze, it’s only natural that McKinsey’s findings show consumer sentiment still in the doldrums, with only ~23% feeling optimistic about America’s economy.

Consider these further findings from the research:

About 40% of respondents report that they are living “paycheck to paycheck”
Around 39% are at least somewhat worried about losing their job
Approximately 34% feel they have decreased ability to make ends meet financially

Not surprisingly, respondents with lower family incomes (under $75,000 per year) have higher concerns, and roughly 40% of those households report cutting back or delaying purchases as a result.

[Even among people living in households earning $150,000+ per year, one in five say that they’ve cut back or delayed purchases because of financial uncertainty.]

Activities we commonly associate with recessionary eras continue to be practiced by consumers. According to McKinsey’s research, those practices include:

Looking for ways to save money (comparison shopping, coupon use, etc.): ~55 of respondents report doing so
Purchasing more products online to save money: ~48%
Cutting spending over the past year: ~40%
Doing more shopping at “dollar stores”: ~34%
No longer preferring/buying more expensive product brands over private-label substitutes: ~33%

Where things really look different “on the ground” than in the economists’ forecasts is what the public is saying about their future behaviors: McKinsey believes that consumers and their attitudes have been permanently changed by the years of austerity.

The strongest indication of this? Nearly 40% of the survey respondents say that they’ll likely never go back to their pre-recession approaches to buying and spending.

As McKinsey concludes in its report: Cautious is the new normal … and it’s unlikely to change anytime soon.

More details on McKinsey’s survey findings can be viewed here.

Coming Up: A Labor Shortage?

September 10, 2014September 10, 2014 Phillip Nones Business, Demographics, Economics, Employment, Manufacturing, Social Commentary Business, Conference Board, Economics, Employment, Employment Trends, Gad Levanon, Labor Market, Labor Shortage, labor shortages, Unemployment

It may seem fanciful, but a new report published last week by The Conference Board concludes that the United States and other advanced economies will actually face significant labor shortages over the coming decade and a half.

This forecast has been made primarily based on the Baby Boomer workforce departing the labor market over this period.

The Baby Boomer phenomenon is what makes things different in now compared to the decades previously: For the first time since World War II, working age populations will actually be declining in mature markets.

As Dr. Gad Levanon, director of macroeconomics at The Conference Board reported, “The global financial crisis and its aftermath – stubbornly high unemployment in many countries – have postponed the onset of this demographic transformation, but will not prevent it from taking hold.”

According to The Conference Board’s analysis, several countries have already begun to see this happen, as their natural rates of employment have now fallen below their pre-recession levels: Japan, Germany, South Korea and Canada.

The same thing is expected to happen in the United States and the United Kingdom by 2015 … and in the Scandinavian countries, the Benelux countries plus Australia by 2016 or 2017.

Other mature economies like those of Spain, France, Portugal, Italy and Greece won’t experience this until the years further out – but The Conference Board predicts that it will happen there as well.

U.S. market sectors that are expected to experience the most severe labor shortages include healthcare occupations, STEM occupations (science, technology, engineering and mathematics), as well as skilled trades that don’t require a college degree but that do require specialist training.

Among the challenges The Conference Board envisions in these three major categories are the following:

Skilled labor occupations like construction, transportation and utility plant operations are going to be adversely affected by many more retirements happening than new job seekers coming in to fill the void.
STEM occupations won’t be as stressed as some might imagine, because higher productivity will alleviate the pressure on hiring more workers in IT and high-tech manufacturing segment. That being said, certain sub-segments such as information security, environmental and agricultural engineering, and applied mathematics are expected to face severe labor shortages.
The numbers of new entrants in various healthcare occupations are constrained by high barriers to entry such as extensive education and experience requirements, along with accreditation requirements.

The Conference Board report has constructed a Labor Shortage Index covering 32 countries. The index combines current labor-market tightness with future demographic trends to predict the likelihood of the different countries experiencing labor shortages.

The bottom line on the index: with the exception of the Mediterranean countries, all of the labor markets in developed economies are expected to be squeezed pretty tightly starting within the next few years.

It’s been quite a while since we’ve been hearing about pending labor shortages … but that’s exactly what The Conference Board is predicting. Here’s a link to more details about the report, which is appropriately titled From Not Enough Jobs to Not Enough Workers.

If you have thoughts or personal observations to share on the job markets on the domestic scene or internationally, please share them with other readers here.

Is it time to change daylight savings time – and time zones – once and for all?

November 3, 2013November 5, 2013 Phillip Nones Business, Economics, Employment, Government, Human Resources, Social Commentary, Uncategorized Allison Schrager, Business, daylight savings, Daylight Savings Time, Economics, Jet Lag, Time Zones, Worker Productivity

Each time we Americans need to change our clocks, it’s accompanied by an undercurrent of grumbling about how disruptive it can be to our daily routines.

Indeed, in certain states that are in close physical proximity to time zone boundaries, the issue can be controversial enough to affect the popularity of elected officials, as has happened in Indiana and Arizona.

Daylight savings time, an innovation that became popular in the 1970s, continues to be a nettlesome issue because of when it is in effect in the United States – nearly a month earlier and a month later than before … and no longer in sync with other countries (if they even observe DST — and many of them don’t).

Daylight savings time is supposed to be more energy-efficient. But it turns out the energy savings are minimal if any. Uncoordinated time changes could very well undermine economic efficiency far more than any positive impact in energy savings.

A case in point: Lack of synchronization with European time changes is estimated to cost the airline industry nearly $150 million in travel disruptions each year.

Moreover, some investigations have found that daylight savings time may actually cause worker productivity to be lower.

Does the current time zone structure have to be cast in stone? Of course not. The history of “time” is actually one of pretty constant change, dating all the way back to when time zones were first implemented in the 1880s.

Before then, each city and town had its own local time which was established by calculating the solar time in the local location using sundials. Effectively, this meant that there were more than 300 different time zones in the U.S.A.

The American railroads were more streamlined: They operated with only about 100 time zones.

Clearly, introducing four time zones for the continental U.S. was a way to introduce simplicity while compromising only a little regarding human biorhythms.

Of course, it took awhile for the time zone system to be adopted worldwide, but eventually it happened.

The economic and commercial landscape looks far different today than in the late 19^th Century. We are no longer bound by the physical limitations of geography in terms of how we do business.

As a result, some economists are suggesting that it’s time to overhaul the time zone structure and to move to a system that is even simpler and less disruptive to people’s lives.

One economist, Allison Schrager, has come up with the most radical solution I’ve seen yet. Drawing from economic models plus her own experiences working across multiple time zones, Dr. Schrager has put forward the following recommendations:

Scrap daylight savings time altogether

Consolidate and reduce the four current continental U.S. time zones (Eastern, Central, Mountain, Pacific) to just two (Eastern, Western)

Under the Schrager scenario, the new time zone map for the continental United States would look like this:

Dr. Schrager points out that, while a fewer number of larger time zone geographies would seem to remove some people further from their “true” time zone, the realities of global commerce are already doing that anyway.

By contrast, she sees the benefits as more major. For example, frequent travel between time zones under today’s four zones causes jet lag, robbing employees of productive work time.

With just a one-hour time difference between New York and California, bi-coastal travel would become almost effortless in that regard, Schrager maintains.

As for the disruption such a change might cause to international business coordination, Dr. Schrager contends that just as it took one or two countries to start things off in the 1880s, someone needs to step up to the plate today to start a new trend.

She says: “… America won’t line up with the time zones of countries directly north and south unless this catches on as a global trend. But the discontinuity ship already sailed when rich Western countries haphazardly adopted daylight savings time and most other countries didn’t. Time is already arbitrary; why not make it work in our favor?”

Does Dr. Schrager raise some good points? Would simplifying the time zone map and ditching daylight savings time be a “net positive” or not?

Some of her arguments seem to make sense to me. What do you think? Please share your thoughts with other readers if you’re so inclined.

The American middle class may be squeezed … but why?

April 28, 2013August 25, 2015 Phillip Nones Economics, Employment, Social Commentary Adam Smith, Amy Sullivan, BRIC, Economics, Economy, Immigration, Income Disparity, Middle Class, National Journal, News

In recent years, there have been numerous analyses and articles addressing threats to the middle class in America, and who or what is to blame for what’s happening.

The latest article, The American Dream, Downsized, is written by Amy Sullivan, a writer and former editor at TIME and Washington Monthly magazines and was published in the National Journal magazine this past week.

The statistics presented by the author – including those showing the middle class “squeeze,” a smaller proportion of Americans falling within the middle class as compared to poorer or richer segments – are indeed sobering.

But in reading the article, I also got the sense that the premise of the argument – that the economic conditions in the America of 50 years ago represented the “norm” – may be flawed.

What if the conditions today represent the “norm” and the conditions back then are the ones that were “skewed”?

I shared the article with my brother, Nelson Nones. As someone who has lived and worked outside the United States for years (in Europe and Asia), to me his thoughts on world economic matters are always worth hearing because he has the benefit of weighing issues from a global perspective instead of simply a more parochial one (like mine).

Here’s what Nelson shared with me:

I have a very no-nonsense view of what’s happening to the American middle class, and why. The American Dream was “real,” the article says, during the post-World War II prosperity of the 1950s when a “middle-class family bought a house, put a car (or two) in the driveway, and raised children who ran around a safe neighborhood and later went to college with their parents’ support.”

This characterization paints a scene that is peaceful, tranquil, secure and prosperous – but it completely misses a couple salient points:

The Cold War – The 1950s were also a time of fallout shelters and fighting Communism. It’s easy to forget all that.

The Communist and Socialist countries – two of which today are part of the “BRIC” countries (Brazil-Russia-India-China). Russia (then the Soviet Union) and China barricaded themselves and their vassal states behind the Iron and Bamboo curtains – and slowly but inexorably starved themselves to death economically. The other two, Brazil and India, barricaded themselves to a degree as well. As an example, they threw out Coca-Cola and forced the locals to drink the disgusting domestic variants Campa-Cola in Brazil and Thums Up in India, just to thumb their noses (no pun intended) at those wicked ex-Colonialists and American capitalists.

Most of the rest of the world – mired in abject poverty. This article provides a timeline for Singapore, where the annual per capital GDP was just US$400 in 1959 vs. US$7,259 in the United States.

In other words, while income equality and middle class prosperity were peaking in America between 1945 and 1970, the situation at the global level was exactly the opposite.

As we all know, the political and economic barricades fell quickly in late 1980s and early 1990s. The effect is precisely what political economist Adam Smith predicted in The Wealth of Nations (1776):

“If a foreign country can supply us with a commodity cheaper than we ourselves can make it, better buy it from them with some part of the produce of our own industry, employed in a way in which we have some advantage.”

Not coincidentally, Singapore’s per capita GDP today, at US$50,800 (according to the CIA World Factbook) exceeds that of the United States, at US$48,400. Of course Singapore is a small country and it’s just one example – but it’s a telling one.

I would argue that the American Dream, or at least the ideal of it framed in the 1950s, might have been “real” at the time (people, after all, were buying real houses and cars with real money). But it was temporary. And it could never be permanent if you believe Adam Smith.

Consider this: Many of the middle-class breadwinners were union workers. Their rising incomes were directly attributable to collective bargaining agreements that American companies could afford to enter into because they had little or no foreign competition and hence could pass rising costs on to the very consumers who benefited from those agreements.

Today, some of those same companies are bankrupting themselves just to rid themselves of unions and the unfunded pension liabilities they took on board when the good times were rolling. And why is this? Because they have to fight foreign competition just to stay alive. (This CNBC article, published just a few days ago, says it all.)

I would also contend that today’s “scaled back” notions of the American Dream might reflect the more realistic (less idealistic) views of the vast number of immigrants who have come to America since the barricades have fallen – many of whom fall squarely within the article’s definition of “middle class” (which I calculate to be $13,725 – $39,215 per year per capita, using the per-household figures quoted in the article divided by the current average U.S. household size).

For these immigrants, the assurance of being able to “hold on for dear life” is actually a big step up from the mayhem, extortion, hidebound traditions and general hopelessness that often run rampant in the countries or societies they’ve fled.

It astonishes me that this National Journal article hardly mentions any of the above: The word “foreign” can’t be found anywhere in the article … “immigration” appears only once in the context of how Hispanic immigration is exerting a “steady downward pull on income” … and “union” is stated only once in the context of children in the 1950s skipping college and entering the workforce with a “secure, often union-protected job.”

How could the article’s author have missed what is so obvious? I’m quite sure she’s not so ignorant … so she must have an agenda. But if that’s the case, and if I were to believe her agenda-based screed, what would that make me?

Just like author Any Sullivan, my brother Nelson has a strong point of view about the current situation of the American middle class!

As for me, I think the article’s statistics are real. But I also believe that post-war conditions in America were an anomaly borne of special circumstances. For the author to treat them as the “baseline” for evaluating the “fairness” of all that has come since … reveals a serious flaw in the underlying argument.

Besides, what’s “fair” today versus what was “fair” 50 years ago takes on a completely different complexion based on where one lives in the world!

OK, readers: Have at it. What’s your perspective? Please share your thoughts here.

Plain as Day: The Labor Market Recovery is Non-Existent

September 13, 2012September 13, 2012 Phillip Nones Uncategorized BLS, Bureau of Labor Statistics, Business, Economics, Employment, Employment to Population Ratio, Labor, Labor Market, Labor Market Health, Nones, Nones Notes, NonesNotes

The single most accurate indicator of labor-market health is the employment-to-population ratio.

Unfortunately for the United States, it’s not looking any good … and it hasn’t for over two years.

People say a picture is worth a thousand words. In this case, a chart is worth many more.

[Actually, it would be nice if this chart got all of the politicians to stop blubbering away with their thousands of words, and instead take some time to truly ponder what the data is telling us!]