FRIDAY, MARCH 23, 2018
JIM: It’s often been said as the consumer goes, so goes the economy. What is the consumer doing these days? What are they thinking? Joining us today is one of the nation’s foremost experts on consumer research, Jack Plunkett, CEO of Plunkett Research, a Houston-based provider of market research and industry analysis. He is the author of The Next Boom and his client list includes 10,000 leading corporations, universities, and government agencies worldwide. While a lot of news seems to be bleak with the lagging economy, Jack has some positive information to share with us on what we can look forward to. Welcome, Jack.
JACK PLUNKETT: Thanks, Jim. It’s great to be back with you.
JIM: It’s great to have you back and I know we’ve had this summer, as we’re recording this, seems like a lot more volatility up and down. Just recently, they talked about consumer spending is gone. With your research, what are you finding that has consumer spending lagging at this time?
JACK PLUNKETT: That’s a great question. If there is any component of the economy that’s still not looking great, it’s consumer spending. The real problem is the change in consumer attitude since the Great Recession that we all went through starting in late 2007 through mid-2009. Wasn’t so long ago but consumers really went through what we consider to be a C change because of that recession. They saw their friends and neighbors lose their houses, lose their jobs, go bankrupt in some cases, and it’s really made consumers reluctant to part with their money. When they do part with their money, they want to do it without being in debt so that consumer debt component has actually declined dramatically since the recession. Household debt is down very much except for student debt and new car loans. Consumers are finally replacing their cars but as far as whipping out the credit card and going out on a shopping spree, they’re just not doing it.
JIM: That’s probably not the worst thing because I think prior to this downturn in the market, they might have been overspending. While that might have been temporarily good for the economy, that probably had a lot to do with driving the bubble and the declines we saw in 2008 and 2009. Is that true?
JACK PLUNKETT: That’s absolutely true. In fact, it had a tremendous amount to do with it and it wasn’t spending by itself that really created the bubble. It was going in debt to do that spending so if you look at household debt as a percentage of discretionary income, which is a simple and common measure of just how indebted American households are. If we go back to 1980, that level was about 80%, which is very, very manageable. At the peak of the last boom so back in early 2007/mid-2007, that 80% household debt level had soared to over 135% just in a few short decades. Any economist will tell you the level it had risen to was clearly unsustainable and it was just a bubble waiting to pop. Getting household balance sheets rebalanced is great for the long term of the economy but it’s taken the air out of retailers and other sectors that rely heavily on consumer spending.
JIM: We’ve seen some of the state governments follow suit. Now we’ve just got to get Congress to kind of maybe follow a little bit.
JACK PLUNKETT: Well, we’ll see about that, yeah.
JIM: Yeah, so what is it that consumers want these days?
JACK PLUNKETT: I think it really boils down to a very short list of things. Consumers, as I said, it’s really hard to get them to part with their money and when they do part with it, they want to feel like it’s well and wisely spent. First of all, consumers are becoming less of a disposable society. We used to say people buy something, use it once, and throw it away. Now they want true lasting value when they buy something. They want to know, number two, that when they buy something, it not only has lasting value but it is significant quality and utility so the quality and usefulness of the item have become more important in general than the fashion of the item. If something happens to be fashionable as well, that’s great but people really want to get some long-term use out of what they’re buying. They don’t necessarily care where they buy it or who they buy it from except that they want to deal with organizations that represent the consumer’s own values in some way. People want to feel good about the companies they’re doing business with. If companies have a lot of negative publicity, if they seem to be mistreating their customers and their employees, they’re going to have trouble surviving the day. Number two, companies need to offer consistently reasonable if not exceptionally good prices. Consumers want quality. They want lasting value. They want everyday low prices.
JIM: Now let’s talk about demographics. I’ve heard a lot of talk about this. I know Harry Dent made quite a splash when he released a couple of his books. I remember a book, The Pig and the Python, where they’re all focused on the baby boomers and I know now as baby boomers age, if we look at demographics as people get older and the kids are out of the house, they start spending less but we also have I believe it’s the millennials that are even a bigger generation coming behind. They’re not even close to their peak spending years so what does all the demographics, how is that going to impact consumer spending and obviously the economy?
JACK PLUNKETT: That’s a great question. I’m going to touch on baby boomers lightly since you opened your question with that. The thing I’d like to remind investors is when you think of today’s seniors that are turning traditional retirement age of 65, don’t think of them as you did your parents or your grandparents because this is a totally different group of seniors. They’re more affluent than former seniors. They’re in better health. Surveys consistently show they want to continue working as they get older to a large degree and they’re going to live a lot longer. I think boomers are still a core consumer market. They’re just changing a little bit as they get older, become empty households. Millennials are something really to keep an eye on. There’s a little disagreement about how to measure exactly what the millennial generation is. At Plunkett Research, we say it’s people born from 1980 to 2000 so roughly 85 million people, the biggest generation in America’s history. If you do the math today, those people are roughly 14 to 34 years old. Now here’s a consumer group that really is hard to get to part with its money. A lot of these millennials are still in school and as we know are going into significant debt for college loans so they’re willing to go into debt for that level but they’re very slow to buy houses. They’re very slow to buy cars. A lot of them will tell you they don’t see any sense in owning a car when they can use a system like Zipcar. They stay in Airbnb rooms instead of renting expensive hotel rooms. They are somewhat conscious of fashion but they’re very likely to go to something like H and M or Uniqlo to buy what we call fast fashion, which is extremely inexpensive. They are utterly and totally digital natives so a huge amount of their personal budgets are going for things like the latest cell phones, the latest video games. They tend to spend a lot more time on social media and online activities than older generations do.
JIM: What do you see that doing for the economy as we go forward?
JACK PLUNKETT: That’s a great question. Overall, I think it means lower retail spending. I think it means industries like the automobile industry having to look more and more to foreign nations and emerging nations for their growth and that’s why you see companies like General Motors emphasizing their Chinese market so heavily. I think it sees the travel industry having to change dramatically to reconfigure properties and travel options for millennial tastes. I think it means everything from food to restaurants on the consumable side are going to have to be more conscious of millennials’ desire to get things that are green in terms of the ecology, greener things, more organic things. That is one area they’re willing to spend a bit more money on. We’re about to see the whole economy really have to go through a little bit of mind shift to how do you cater to this upcoming generation but I will also stop and tell you it’s not the first time. When the former generation, Gen X, came through, most industries had to reconfigure a little bit. When baby boomers came of age, the industry had to reconfigure. It’s not anything new for an upcoming generation to have different tastes and attitudes and spending habits.
JIM: That’s all job security for you, right? I mean you’re the one that’s counseling all the businesses on where the trends are going so that they can cater to their customers.
JACK PLUNKETT: I appreciate your saying that. First of all, I find it absolutely fascinating to see what’s changing in the world every day socially in terms of government regulation, in terms of technology and, of course, businesses and how they respond to that. As you know, I wrote a really comprehensive book called The Next Boom that sort of weaves that all together, demographics, technology, global trade, to give people an easy to understand kind of visual path into how things are changing over the near future and then also at Plunkett Research, we publish very in-depth reports on every major industry sector every year. I would encourage people if they’re really trying to study and understand an industry to look at our website, PlunkettResearch.com, and we actually post quite a bit of free data, free statistics for every industry, free introduction to the core concepts and changes going through every industry. There’s a lot of free data on our website and if people happen to need really in-depth analysis of industries like nanotech and biotech and retailing and banking and so on, of course, they can look at our offering of reports that way on our website.
JIM: That’s fantastic. Hey, we’re going to take a short break. When we come back, let’s talk about what’s going on with manufacturing so please stay tuned.
JIM: Welcome back as we continue to visit with Jack Plunkett, CEO of Plunkett Research, a research firm that helps businesses find out where trends are going so they can do their long-range planning to accommodate their customers and I think it’s also a lot of the information that you have for the investor is knowing where to invest the money and to maybe have a little bit of caution. Obviously, for most people, you shouldn’t be going this alone. The research that you do is fantastic but when it comes to picking companies, you want to use professionals and talking to your professional advisor is a good place to start. Let’s talk about manufacturing, Jack. Is there going to be a renaissance in U.S. manufacturing? I hear a lot with the high price of oil and shipping costs that go along with that, that U.S. manufacturing is kind of getting a rebirth because we’re the biggest consumers in the world and rather than buy the products from overseas and pay all that shipping, we’ve gotten a lot more efficient here in the United States and I’ve seen a lot of articles that say manufacturing is coming back. What does your research show?
JACK PLUNKETT: Great question, Jim. We still as a nation are a powerful manufacturing economy. It’s just changed dramatically over the last decades and a lot of that manufacturing, as you know, has gone overseas, particularly into what at one time were much lower cost nations. There was a time 20 years ago when it was extremely inexpensive to hire a worker in China, for instance. Big changes that are taking place are in China where that nation is losing its low cost advantage and is now becoming more of a place to go manufacture because it’s located in a dynamically growing regional Asian economy. Today, if I was a manufacturer and I wanted to go to China and build something, I’d be doing it more to sell to the Chinese market than I would be starting up there to make something to ship back to the United States, if I was starting over. A lot of low cost manufacturing that used to happen in China, and that’s particularly clothing and shoes, has now moved into lower cost nations like Bangladesh, Pakistan, Vietnam, Cambodia, so it’s really changing. Those higher costs combined with difficult shipping costs, as you just mentioned, not to mention shipping delays. It still takes about a month to get something by maritime freight from Asian markets into the United States so delays, shipping costs, the inconvenience of trying to manage overseas. A lot of companies are, in fact, either not building their manufacturing plants overseas at all or bringing some of that manufacturing back to the U.S. In a few cases, they’re finding they save costs overall because they don’t have to ship so far but in many cases, they’re finding that it’s reasonably competitive just on a timesaving and ease of management basis. Here’s the big difference though, Jim. In the past, so let’s go back to 1960/1970 when we were very much a heavy manufacturing economy, it took a lot of manpower to create a dollar of manufacturing output. Today, in the United States, we’re more likely to use factory automation or, to put it into one word, robotics to do as much of that manufacturing as we can. There are literally plants in the United States where they turn the lights off, lock the door, and go home and remotely monitor the input and output of robots that are manufacturing everything from textiles to light bulbs. Of course, the engineers go daily and check on it but literally lights out manufacturing plants that don’t need a lot of human intervention. We’re going to see more manufacturing activity in the United States. We’re not going to see a dramatic increase in manufacturing jobs in the United States. That is pretty much gone forever. Investors who want to study interesting things regarding this should be taking a hard look at companies involved in factory automation so the software, the hardware, and the robots that drive a modern factory.
JIM: When you’re talking about that, obviously you’re talking about technologies. Are there other future business investment or growth that you want to look at other than robotics and that? Are there some other areas maybe in the healthcare field that you see as a growth industry?
JACK PLUNKETT: Great question. Here are some themes we are really stressing at Plunkett Research. First of all, I think healthcare for the next 30 or 40 years is going to be the biggest business opportunity in the history of the world and I say that because here in the United States, we’re spending way too much money on healthcare both as a per capita cost at about $9200 per capita per year and as a percent of GDP at about 18%. If you compare the United States to the rest of the developed world, we’re spending anywhere from two to three times per capita more than other countries do and at least twice as much in percent of GDP than other countries. On the emerging world, so you get into developing nations like Vietnam I mentioned earlier, there essentially is no modern healthcare. Per capita expenditures on healthcare in nations like that are about $100 on average worldwide per year so there’re two sides to this coin. How do we deliver services and products, technologies and drugs to the emerging world and take advantage of that incredible business opportunity while at the same time cutting healthcare costs in the United States, France, the UK, Canada, Japan? Companies that can get on either side of that equation in healthcare are going to have an absolutely phenomenal future if they can serve growing needs.
JIM: When I see some of the new technology that’s being developed and maybe not even available yet for the consumer or some of the new stuff that’s come out, there are tremendous opportunities for cost cutting. There’s a delicate balance. We don’t necessarily have to have rationed care and have the government get involved but part of the problem is the old infrastructure of the old way of delivering healthcare where it’s so profitable to do that that they’re not allowing new technology to come forth and I think there’s kind of like a yin and yang or a pulling in different directions and I think if healthcare reform and cost savings is going to happen, we’re going to have to figure out a way to allow technology to be embraced. Would you agree with that?
JACK PLUNKETT: I’d say it’s absolutely true. Not only are people creatures of habit but businesses and industries can become creatures of habit or as the late great economist, Milton Friedman, put it in the title of one of his best books, The Tyranny of the Status Quo. There’s nothing harder to overcome than to break the inertia of status quo, whether it’s a business or in our personal habits, and there’s just a whole lot of revolution and new thinking that needs to go on in healthcare. We can still deliver great care with great outcomes but we’re absolutely going to have to drive the cost down. The amount we’re spending on it right now is completely unsustainable.
JIM: Well, Jack, again, I really appreciate you joining us. You really shed some light on the subject. Obviously, we have some challenges looking forward but there’s tremendous opportunity out there. As you mentioned earlier, people can go to your website. Do you want to just share what that website is again to get information?
JACK PLUNKETT: Thanks, Jim. It’s PlunkettResearch.com and Plunkett is spelled with two T’s so PlunkettResearch.com. You’ll find a lot of free and really stimulating information on the website including videos under The Next Boom link where you’ll find me giving five-minute videos on all the topics we just discussed today so I think people would enjoy it.
JIM: That’s awesome. Also, we’re going to put your book up on the website so if anybody wants to get Jack’s book, you can just go to the Resources For You and look at the Must Read section and his book will be up there so if anybody wants to order or get more information. It’s always a pleasure to have you and I’m looking forward to having you again real soon.
JACK PLUNKETT: Jim, thanks. It was a lot of fun.
JIM: Thanks for joining us this week and tune in again next week as we explore another phase of the Real Wealth process and remember, if anything you heard in today’s show you’d like to get more information about, contact us. Also, if you feel that any of this information would be helpful to a friend or family member, just forward this link to a friend!
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