Capitalism at Its Best

Change the Game™ Podcast

Difference Between Disinflation and Deflation

Posted by Jackie Greene on Mar 3, 2022 7:23:42 AM
Jackie Greene from ITR economics discusses how to be better prepared, so you are not caught off guard. Why you should lose the losers and the difference between disinflation and deflation. 

Podcast_Jackie Greene (1)

 

Episode with guests: Jackie Greene

ITR Economics

(This episode was recorded in February of 2022.)

 

Key Episode Take-Aways: Show Notes

1. How to be better prepared so you are not caught off guard. (click to jump to this topic below)  So, they're not caught off guard, you should always be planning at least half of business cycle ahead. And we use our management objectives that can be found in all of our programs to help set those guidelines. And those conversation starters really, for no matter what phase of business cycle you're in.

2. Why you should lose the losers. (click to jump to this topic below)  You were having to carry a lot of costs and other resourcing issues to deal with the other 8% of the skews that you were offering, why continue doing it, we have a phrase called lose the losers. It's really not the prettiest or phrase or the friendliest phrase. But in that instance, it's really focusing on the ones that are going to yield you a higher profit that you can then focus and tailor to those ones.

3. The difference between disinflation and deflation. (click to jump to this topic below)  It's not purely inflation escalating these numbers, it is real growth, it's just getting some boost from inflation. Now for 22 and 23, we are expecting disinflation. So that doesn't mean deflation, there's a very careful distinction there that prices will still go up.

 

Continue scrolling to read the full episode transcription.


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Announcer 0:43
Welcome to the Change the Game Podcast, where we share stories of open-book management and highlight capitalism at its best.

Thank you for tuning in to this episode of the Change the Game Podcasts with special guest Jackie Greene, in this episode Jackie from ITR Economics discusses how to be better prepared, so you are not caught off guard, why you should ditch the losers and what's the difference between disinflation and deflation.

Here's your hosts Rich Armstrong and Steve Baker.

Steve Baker 1:14
Welcome to the Change the Game Podcast where we are changing the game by doing business differently and highlighting stories of capitalism at its best. I'm Steve Baker, and with me is Rich Armstrong, head coach and co author of our new book Get in the Game: How to Create Rapid Financial Results and Lasting Cultural Change. Hello, Rich.

Rich Armstrong 1:33
Hey, Steve, how are you today?

Steve Baker 1:35
Well, I'm excellent because my economic outlook is looking up because today we've got a very special guest. It's Jackie Green, she's the vice president of economics at ITR. Economics. Now listeners of ours know ITR. They're big believers. But for those of you who are new, ITR provides the best Economic Intelligence for Great Game companies. And of course, companies that aren't playing the Great Game, but you can reduce your risk and drive your practical and profitable business decisions. They also lead the industry with their proven forecasts with an astounding 95% accuracy. Jackie Greene, welcome to the podcast.

Jackie Greene 2:14
My Thank you very much. I'm thrilled to be here.

Steve Baker 2:17
Now Jackie, our listeners have met Alan at the conference over the years and maybe even heard Brian speaking that sort of thing. Tell us a little bit about yourself.

Jackie Greene 2:28
Well, I've been with ITR for since 2005. So I've been here quite a while I've over those time periods. I've done lots of different things on the econ team, I've worked my way up from the very bottom, frankly. And during that time, I have worked with some of our great clients. I've gotten to learn so many new industries that way. These days, I'm more focused on working on our core forecasts that really drive a lot of our overall economic thought and then drive our company forecasts. So it's a lot more of the thought leadership team here at ITR. Setting the big picture for the upcoming business cycles. It's really exciting. A nerd okay, I qualify, it's exciting for me.

Steve Baker 3:11
I like to pretend I'm on the thought leadership team here at Great Games. So it's great to meet you. So you work with companies taking that intelligence and translating it, that the realities of the world economy and helping companies understand what it means for their business strategy. Could you tell us just a little bit about like what a typical interaction would be with one of your clients?

Jackie Greene 3:39
Certainly. So for a lot of our clients, we forecast either their business themselves, so their revenue, their sales, their units, whatever the case may be, or will forecasts or markets or some combination thereof. And a lot of the times what we're doing is we'll present them a forecast based on what they're doing right now. And it's generally through your Outlook so that they can make better decisions, or our goal is always for our clients to prove this wrong. I know that sounds kind of silly, because we love our accuracy in our forecast, but we want them to prove us wrong. We want them to be able to take the information we're giving them. But what markets are going to be outperforming and which ones are going to be better for them over the next few years so that they truly can beat the forecast. Years ago, I was at a client visit and I was standing there talking to the group in the boardroom. And I think I had projected they were going to be up 2% or something like that. I remember very clearly one of the gentleman in the room was frustrated with me. He said you're wrong. I said How was I wrong? He said we grew 3% instead of 2% said, Okay, so last time I was here, we talked about some of the things you can do to do better than my forecast. Right? He said, Well, yes. I said, Did you do those things? He said, Well, yes, I said so why are you mad at me? That's what we're supposed to do. That's what I love doing.

1. How to be better prepared so you are not caught off guard.
Rich Armstrong 4:54
That's awesome. Thanks. Yeah, that's, that's a really good example and you know, SRC our parent company here at The Great Game of Business has been, you know, a fan, as Steve said for many years, maybe over 20 years and in our CEO, and many of the business units use ITR as a perfect guide to basically work our long term planning at SRC. Can you give us some examples of, you know, maybe going a little deeper than what you just did in terms of how companies do use these forecasts, to kind of guide their long term planning and their strategic planning specifically?

Jackie Greene 5:33
Certainly? Well, for starters, we have one of our very frequently used tools by clients, which we call an EVP. There's various levels of it. But ultimately, what it's doing is it's comparing a company's revenue, or sales or wherever they're using to gauge the success of their business, to a collection of key leading indicators. These indicators are generally representative of the macro economy of Kealing indicators, such as our ITR leading indicator, and then their market specific indicators. So if they're in food production, and they're also in oil production, those will be indicators that we use there. We then compare them to those indicators. Ultimately, we use our forecasting process, we arrive at this forecast, and we deliver it to them with these indicators. Part of our consultation program with them, though is we talk through it. And then we talk through these, this is your forecast if you do nothing different. But we see that food is going to be outperforming oil are there things you can shift resources to be capturing more of that focusing your sales team in that direction, or searching for new market, because we see up ahead of us the 2030 depression to our time period coming start thinking more strategically about how you can be more entrepreneurial, and be better positioned for those things. So it depends on the timeframe, we're working with each account, we look at ways to beat every business cycle, there are still ways to make money and be profitable even during recessions. So that's what we're always trying to help our clients do is be better prepared. So they're not caught off guard, you should always be planning at least half of business cycle ahead. And we use our management objectives that can be found in all of our programs to help set those guidelines. And those conversation starters really, for no matter what phase of business cycle you're in.

Rich Armstrong 7:23
That's very good. Thank you, Jackie.

Steve Baker 7:26
So actually Rich, I was thinking, you've got a great question that ties right into what Jackie's answer was there. I'd love to skip ahead to that. And then I'll come back and ask about kind of where we are right now.

Rich Armstrong 7:38
Okay, great, great Jackie, in a in a recent blog that, that I that I just read that ITR put out I think just this week, you're expecting the core segments of the economy, to reach kind of the business peak cycle, right of kind of accelerated growth we've seen and I think, you know, everybody's experienced right through supply and labor issues. But you see it peeking in in a slower growth through I think 23, can you give us some real world examples of how companies that are going through these business cycles are creating strategies based on these insights, you know, what are some changes you're seeing from businesses, some examples of what they're doing, in light of this?

2. Why you should lose the losers.

Jackie Greene 8:26
Oh, let's look at the supply chain side of things. That's been a very frustrating thing for a lot of people. So some of our clients, what we were working with them on was, if you were offering 100 products, and they were competing for resources, but you were seeing that 20% of those product lines, were really responsible for 80% of your revenue. But you were having to carry a lot of costs and other resourcing issues to deal with the other 8% of the skews that you were offering, why continue doing it, we have a phrase called lose the losers. It's really not the prettiest or phrase or the friendliest phrase. But in that instance, it's really focusing on the ones that are going to yield you a higher profit that you can then focus and tailor to those ones. So you're not spread so thin that you're chasing after everything. And that's a big thing to do. Right now, with all the supply chain constraints people have been doing, as well, as I say supply chain issues, but that also tailors into the labor side of things, too. If you're struggling to have enough labor to produce all 100 SKU, and you know that you're going to get the maximum from 20 of those SKU, focus on those 20 and let go of the other lines that aren't nearly as profitable or as frequently purchased. Is it really worth that extra one unit there? If that 99 SKU will get a sale, but if it doesn't exist, the client will still buy one of your other options. Is it really worthwhile?

Steve Baker 9:51
Mm hmm. That makes sense.

Rich Armstrong 9:53
Yeah, I think it totally makes sense. It's very relevant. We were just having a conversation with our coaches the other day about the clients they're working with today and trying to find those available resources and a lot of that product and customer rationalization that you just described was going on. Right? This is the time to really look at those customers and look at those products that are probably a lot more effort than return. Right. So I think that's just really relevant. Thank you, Jackie.

Steve Baker 10:23
I am concerned, Rich, that you're listening too closely to Jackie. And when she says lose the losers, you kind of looked my way. I don't understand that fully. But Jackie, let's talk about what things are looking like right now. So it's my understanding that the the data for 2021 year in is that we've risen to like five by 5.6% on US industrial production. And we're, this is one of the thing I love about Alan, as he points out, we're still number two in manufacturing in the world and number two exporter in the world. That's pretty amazing. So all this growth, highest growth rate in a decade, do you really see that growth continuing?

Jackie Greene 11:04
See growth continuing, but not at that level, or that pace, I should say, and there's nothing inherently wrong with the economy in this sense, it's really just that level is unsustainable. I mean, we were fueled by a lot of pent up demand, we were fueled by some stimulus spending, there's so much going on in there. It's just not sustainable. But we do see the economy growing for the next three years, it's not that we're not going to grow, it's just not going to be at the 5.6% rate. It'll be more like 2.8 in 2022. No, it's slowing growth, still growth, you're still gonna have some issues that you're facing in the last year or two years. But they won't be as drastic, it's kind of that time for people to breathe and catch up and get things back in order while we get prepared and ramp up for the next upswing in the economy.

Steve Baker 11:52
Absolutely. I have a follow up on that. So along with that growth, we've experienced inflation, which I think is really funny, because when we're talking to large groups and conferences lately, we'll point out that you know, SRC was born when inflation was 12%. So like, go as Allen puts it, go hug an old person, some rough stuff. And so inflation is at a 40 year high, you know, which is, of course, right back to SRC's. Birth 40 years ago. How is this gonna affect spending and business growth this year in 22?

The difference between disinflation and deflation?

Jackie Greene 12:30
Well, it's impacting things in a couple different ways. So it depends on what side of the coin we're looking for one, if we're looking at dollar denominated series, such as new orders, or wholesale trade or construction or retail sales, yes, that inflation numbers being felt in there. It's amplifying some of those growth trends. But there is still real growth going on. It's not purely inflation escalating these numbers, it is real growth, it's just getting some boost from inflation. Now for 22 and 23, we are expecting disinflation. So that doesn't mean deflation, there's a very careful distinction there that prices will still go up. But they will not be going up at this crazy rate that everyone's been seeing and fretting about. We're going on the backside of the business cycle, it's going to be slowing. And we're already seeing that happening in some of the components actually, primarily in the commodities we're seeing those trends are starting to develop. The leading indicators are very clearly pointing to this trend occurring, we're starting to see the early signals of it, shall we say?

Steve Baker 13:32
Of disinflation?

Jackie Greene 13:33
Yes. So you can very confidently expect slowing rates of inflation in 22. And 23.

Steve Baker 13:42
I just wanted to emphasize that word, because it's something that our listeners could benefit from, right? Because it's, it's easy for people to throw around terms like deflation, but that's a very scary term compared to disinflation, from how you just described it. So that's, that's great. And I like how you separated, kind of, here's the spending side, and here's the inflation side of growth, and then there's the real, organic growth within. So pulling those apart, helps, I think me understand a little bit more about, okay, I can see why things would back off a little bit in the next couple of years. God, thank you,

Jackie Greene 14:18
certainly. And there's different things you can do for your own business to be better utilizing it for lack of a better term at the moment. Like if you are currently setting pricing for different things, you're gonna have a better time putting through price increases during the first half of this year than the second half because of that disinflation trend. The numbers are high right now everyone can easily understand it. But as that disinflation trend develops throughout the year, it's gonna be harder to mentally get people to accept that higher price. So do it in the first half if you're going to put through a price increase. Another thing you can be doing is if you are setting contracts with pricing in them with your suppliers, use the CPI with your customers use the Producer Price Index. So there are two different numbers, but at the high producer price index typically has a higher rate than the consumer price index. So it helps protect your margins just a little bit by utilizing the two different numbers to your advantage.

Steve Baker 15:12
Good advice, we hear it every day, people are like, I just can't keep ahead of this thing. So using a an index, specifically, the not the consumer price index, is the way you're going. I like that a lot. Thank you.

Jackie Greene 15:26
Well, you're still gonna just to be clear, still use the consumer one for saying supplier prices and contracts. But right now, if you're saying those with the customers, you're gonna use that producer one. So it's utilizing the delta between the two.

Steve Baker 15:39
Gotcha. Thank you.

Rich Armstrong 15:42
That's good. And there's kind of a theme of buying a lot of my questions here. But is there some other other ways that small businesses, midsize businesses can what strategies they can do to deal with this inflation? Period.

Jackie Greene 15:59
it's going to get challenging to pass on too many price increases. During the last year, year and a half, we were hearing from customers who would normally pass or one price increase a year, were able pass through six in the same year, just because everyone could understand the prices were going up so high, you're not likely to see that happening again. I think that period where everyone is comfortable eating those price increases is saying it's gonna fall by the wayside, which is why you got to put this price increases through during the first half of this year, over the second half, if you can. The other is be very mindful that even though we're talking about disinflation, we are not going to go back to the period of 2010 level inflation, it's going to be a higher level than you were used to in the last decade. And so you need to be planning for that. Through all your measures. You know, it's not just your pricing, it's all your expenses to just being prepared for all those things. And then specifics. I personally tell people don't walk into just CPI or the Producer Price Index, look for your specific components. And you can share those once you identify them. And we help our clients do that all the time. If corn is a key piece of your business, use the corn price index to really help set your prices and pass those on, we have the data, we happily share that data with our clients. So they can use it as a third party to help justify different pricing races. Use the data to your advantage.

Steve Baker 17:26
I feel like the corn price index is the most delicious of what discussed so far.

Jackie Greene 17:33
Well, we also have some for other food groups. It depends on your preferences, but yeah. Gold and silver.

Steve Baker 17:42
That's right. So the way any fan of ITR would would know that. While CNBC and CNN are reporting, you know, they're showing pictures of LA Harbor and shipping backed up. You guys have been much like you're politically agnostic, you're kind of media agnostic, in my opinion, because you're going with the facts you crazy Mavericks you and you're saying, hey, record throughput, everybody record throughput, so this supply chain thing is not going to last forever? That's the message that I have heard. I'm curious, what are you foreseeing in supply chain issues within this 2022 period?

Jackie Greene 18:23
I know we are crazy people by going with data instead of ... just .... it's a novel approach, I know. But it's work so far. we are seeing that supply chain issues will ease in 2022. They're not going to be perfect. But it is getting better in this not just input we're hearing from clients, it's the indicators are suggesting in the supply chain indicators, leading indicators. They're all clearly identifying that this is happening. So you will still see some of those issues occurring. Particularly as we're struggling with labor, just because we're seeing those issues ease. Remember, we're still short, large amounts of truck drivers in this country. So until we can find other ways to transport those goods, it will still be somewhat problematic, but we're getting better. Not to go out crazy patriotic, but I am proud of what we do here in the country. I mean, this country is so good at finding solutions to problems. It's one of the things I love about human ingenuity too. So yes, there's been issues but we find solutions to it, we find other ways of doing business and getting around the situations that are causing us problems. So it is problematic, but we're getting there. Good, good. Good.

Rich Armstrong 19:36
Well, it's it's interesting you say that I think with with your insights and working with clients, especially trying to give the insight to where the future looks like looking around the corner so to speak. You probably see a lot of different ways people are handling those issues. Right. And one of the ones that an issue we've been doing for a while it's gonna be an issue for a long time and that's the talent shortage and and In the labor shortage, I'm curious if you're seeing anything out with, with clients you're working with of how they're changing or doing things differently to attract and retain great teams.

Jackie Greene 20:14
Couple of different things that we're seeing another things were suggesting, but I fully admit, Steve mentioned, his daughter was graduating this spring, and I was asking what her degree was, because if it's an economist, I'm going to really be jumping all over them. These are some of the things so to be very mindful, our culture, your company, culture is a huge part of retaining and attracting new talent. Really, that's been one of the things that helped us not have the great resignation issue that a lot of other companies have had is we've got a phenomenal culture that we work very hard to maintain, and improve, frankly. If we're talking about millennials, because that's a big workforce right now. So that's, for my focus on a few of these comments on, they want to do well. So by that, I mean, you can't pay them good enough, you have to pay them well. And that's just making sure that they're not going to leave you for a slight change in salary or the proverbial 50 cents more across the street, you have to make sure that you're paying them well. So they feel the value for their worth, I should say. Another thing is they want to do good. And that goes to your culture, that's they want to feel that what they're doing is making a difference in the world and that you as a company are helping this world be a better place. And like one of the things we do is we partner with different charities and different organizations to raise money and try and do good in the world, not because of we know what keeps people happy here at ITR. But just because it's who we are, we like to do those things, because we want to see the world improve. So those are some very key things that will help you attract the right people and really keep the right people, if you keep focusing on your culture, it's gonna make it a lot harder for them to leave just for a slight change in comp, when they know they're valued. They have a good work life balance with you. And they feel like they have a home and some creative things that we're hearing about to have to do with when they come work, how they can work. Now, how remote Are you willing to let people be? Do they have to work nine to five or you okay, if it's flexible scheduling based on what's going on in their family lives or their personal lives? That makes a big difference for people to having that flexibility?

Rich Armstrong 22:28
Yeah, absolutely. And I can attest to your guys's culture, we've had an opportunity to really get to know it are over the last years so and you do have a great culture and great people to work with.

Steve Baker 22:41
Kind of sounds like a bunch of hippies up there. I kept picking that up right or not. But I love it. And I think you've really just listed a lot of things that small to midsize business owners can do. So I'm going to ask my question. But I think you know, if you feel like you've already hit on it just emphasize the point. But if there's just one thing, one thing that a business owner can can focus on, because it's all there. They have bandwidth for this year, what should it be?

Jackie Greene 23:07
So me, the top thing is making sure you have the right people. And it's not just because of the shortage today, right. And we know that's an issue. And we just talked about some of the things you can do for it. But because we see the economy growing for the next few years, so it's gonna be a slower rate of growth, like we talked about, but it will continue to grow. So if you don't have the right people in place, now, you're going to be still hurting two years from now, you need to get those people lined up. Because even if you are introducing more automation and things like that, you still need people to maintain your automation, make sure it's working all the people parts along the process, you have to make sure they're there and well trained. So searching for ways to not just bring those people in the ways we talked about but what sort of programs can you partner with? Are there schools you can partner with so that you are recruiting graduates right as they're coming out of school, or training programs while they're still in school? Even? One of the things that we get complimented on quite frequently, and I'm not trying to toot our horn I'm just showing you it really works is the onboarding program we've developed here at ITR is really very .... trying to find the word I want to use ... but it's been very well received put one way, we put a lot of time and energy into making sure our team members feel that they're contributing right away from day one. We give them a lot of coaching and training and mentoring. They get a buddy the first day then they enter our mentor program so that they constantly have skills that they're working on and someone who's always there to help them. And that's been one of the things that's really helped them feel appreciated and grow in the company. But also we know what we do is so different. Every Economist has come to work here. They have their econ degrees, but what they learned in school is not the sort of economy we do in the real world. So we have to coach and train them all. So that's a lot of the things that every company is going to face is making sure you have the right training programs in place to get the people to do what You mean them to do so you're really hiring for the culture really hiring for that mentality, and not necessarily that skill set, because those skills are really hard to find.

Steve Baker 25:08
Mm hmm. You know what's interesting as I listened to you, and as we observe what you do at ITR, in particular, with your own culture, you know, Jim Collins said, get the right people on the bus, get them in the right seats, he neglected to say, you might have to develop them into a seat yourself, because there may not be ready made bus riders out there anymore. So I love that it just make the investment in your people. That's a great piece of advice for everyone to listen to for 22.

Rich Armstrong 25:37
Absolutely, absolutely. Well, Jackie, we like to wrap up these podcasts. Mainly because Steve and I are just lazy, and we can't come up with a lot of questions we'd like to ask you. What's one question we should be asking you right now. What have we missed?

Jackie Greene 25:53
Um, I would say the one question you should ask me is, we just talked about being slower growth for the next two years. When is the next recession, you always have to know when the next one's coming so that you're preparing you have your markets lined up your product mixes, figuring out how you're going to beat that next business cycle, because you need to know when it's coming, how bad it's going to be. So you're prepared. So to answer my own question that

Rich Armstrong 26:20
great question, Jack,

Steve Baker 26:22
I feel like you're the best qualified.

Jackie Greene 26:25
Well, you can take a shot if you'd like. 2026 that's we're gonna see the low of the next recession there. It's best start 2025 But 2026 is when we're gonna hit the next major low in the economy. So be ready for 2024 You're going to be hitting that peak 2025 is going to be part of the downwards slide. 26 will be

Steve Baker 26:46
the low with that update. 26 being the low does that move the depression? 2030 number. Anyone

Jackie Greene 26:55
know you still got that one to look forward to too.

Steve Baker 26:57
Damn it. Okay, well, I had to give it a shot. All right. Well, gosh, it is really wonderful to have you on the podcast, we want to have you back. But how can people learn more about ITR Economics, Jackie?

Jackie Greene 27:11
Well, you can follow our blogs as Rich was mentioning earlier on our website, ITReconomics.com. We constantly post blogs, our speakers are all over the place. You just sometimes you find them in the airport, even if you do, please send them home. Sometimes they forget where they're going. No, we also have our mailing lists you can get on there's all sorts of ways we have our monthly publications. Lots of ways to stay connected. Just reach out to us any way shape, or form and itreconomics.com and we'll help you find what's going to be the best bet for you.

Steve Baker 27:43
Well, Jackie Greene, always a pleasure to talk with ITR. And it's a real pleasure to get to know you a little better. Thank you so much for being here.

Jackie Greene 27:51
Thanks for having me. It's been a lot of fun. Thank you, Jackie.

Steve Baker 27:55
Let's keep the conversation going. Folks. Send us your questions, your stories, those best practices, you're learning your ideas, your challenges, and of course your victories because that is capitalism at its best. Thanks for joining us, and we'll see you next time.

Announcer 28:09
The Change the Game Podcast is produced by The Great Game of Business. To learn more, visit greatgame.com

Topics: Financial Forecasting, Planning, Contingency Planning, Finance, Strategy, business planning, cashflow, Strategic Planning, Market Analysis, Economics

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