In The Headlines
Is the Expansion Still in its Infancy?
Since World War II, five years has been the average length of an economic expansion in the U.S. The current expansion began in July 2009, just over five years ago. That fact would seem to suggest that the U.S. is about to roll over into another recession. “The September 2014 recession?” was the headline on a recent blog post by Antonio Fatas, an economist at Insead business school and Georgetown University’s McDonough School of Business.
Goldman Sachs recently published a client note by economist Kris Dawsey called “Don’t Call the Expansion Old.” It argues that rather than being in its late stage, the expansion is early- to mid-cycle. Dawsey writes that “…expansions do not die of old age…” but rather are killed, and there are no expansion-killers presently in view.
There is no inflationary overheating, so the Federal Reserve does not need to hike interest rates to cool off growth, an event which can sometimes precipitate a recession. And there are no severe financial imbalances, such as a housing bubble or household over-borrowing, two factors that killed the last expansion, he writes.
The Goldman paper’s main contribution is to break down the phases of the business cycle using a data-mining technique called k-means clustering that spots patterns in vast quantities of raw information. It takes into consideration 15 factors, ranging from the volatility of stock prices to the number of unemployed people per job opening and looks at how they have performed in the past. It finds that their ups and downs tend to cluster together into four phases, which Dawsey labels recession, early cycle, mid-cycle, and late cycle.
The company’s model calculates the probabilities of the economy being in a particular stage of economic growth at any point in time from the present. Currently, it indicates there is a 100% chance of being in the early cycle. Within six months, there is about a 70% chance that the economy will still be in the early cycle, a 20% chance it will be in a mid-cycle, a roughly 10% chance it will be in recession, and close to a zero chance it will be in a late cycle.
Despite the overall positive reading from the k-means clustering model, a couple of indicators are flashing red. Credit spreads are compressed, which means that investors may be overly optimistic about the ability of less creditworthy companies to pay their debts. And the number of unemployed people per job opening has fallen to a post-crisis low of 2, which could indicate bottlenecks in the job market.
On the whole, though, Dawsey characterizes the expansion as still being in its early cycle, with a likelihood of moving into the mid-cycle sometime in the next year. Still, he cautions that the historical patterns “should be viewed with some degree of skepticism in light of the unusual nature of the current recovery.”
Winnebago – Back on the Road to Growth
Just five years ago, Winnebago looked as if it might be on the point of extinction. Sales had been sliding for several years before plunging off a precipice as the financial crisis deepened into a global recession in 2009. That year Winnebago Industries tallied $211 million in sales, less than a fifth of the 2004 figure. The whole recreational vehicle (RV) industry appeared to be wheezing toward its demise. In rapid succession, 20 RV companies closed or were acquired. Yet today, Winnebago is on Fortune’s list of Fastest-Growing Companies for the second year in a row. Sales have come roaring back with the recovery—to $803 million last year, and $884 million in the most recent four quarters—though not yet to their peak reached a decade ago. The company’s market share has surged from 17.2% to 20.3% in the 12 months that ended in May, according to data provider Statistical Surveys.
It would be easy to dismiss this as the latest boom in an industry known for its cycles, were it not for a demographic tidal wave—the retirement of America’s 76 million baby boomers. The largest group of U.S. retirees in history has entered its prime RV-buying years, and Winnebago thinks it has precisely the right mix of nostalgia, adventure, and cushy comfort they are yearning for. Retirees are the company’s sweet spot, and they make for a loyal and engaged customer base. Witness the 11,500-strong members of the company’s Winnebago-Itasca Travelers Club, who socialize at spirited rallies across the country.
At Winnebago’s annual Dealer Days event, at which the company rolls out its newest motor homes, there were flashing lights, and “The Age of Aquarius” played as the drapes fell to reveal a pair of boxy, upright RVs. There were gasps, a few whistles, and the roar of applause. The crowd-pleasing vehicle was the 2015 Brave, a model that harkens back, in name and aesthetics, to the iconic motor home of the company’s heyday. Introduced in 1970, the original Brave became the company’s first sensation, easily recognized by its “flying W” logo and its bunk-over-the-cabin “eyebrow.” The modern Brave has all of those retro trappings and then some, including a flat-screen TV, a bunk with power lift, and a Murphy-style sofa bed that can even convert to a dining table.
In 2009, just 13,000 motor homes shipped industrywide, less than a quarter of the 55,000 in 2007. Winnebago was pounded. The company shuttered facilities and laid off more than half of its 4,000-plus workforce. Randy Potts, 55, an unassuming Iowa native and engineer, became CEO in 2011, 28 years after he started as a temporary tool designer at Winnebago. In those dark days he saw a rare and valuable opportunity to reshape the company. As Winnebago began to recover and ramp up after 2009, Potts refrained from investing in new plants, even as the company began to run out of room in Forest City. Instead, he struck a deal with officials of Lake Mills, a neighboring town, to make use of an abandoned city-owned building. Pledging to bring 50 jobs, Winnebago negotiated a five-year lease for $1 a year.
Potts has started to consider more exceptions to Winnebago’s long tradition of vertical integration. The company now carefully analyzes whether it makes sense to make each part itself. Winnebago is now outsourcing smaller fiberglass components, for example, to save money. Potts made other changes, too. Product managers, rather than engineers, now call the shots on new vehicles, a move that Potts made to increase responsiveness to consumers and to curtail the blame game that, in the past, ensued when vehicles did not sell.
Winnebago, known for its premium, big-ticket motor homes (selling for well over $100,000), has been introducing new products at lower price points, better suited to the post-recession marketplace. It branched into Class B motor homes (also known as “camper” or “conversion” vans) in 2008 and added smaller Class C models that go for as little as $60,000 each. The company also added a number of floor plans and emphasized features, such as slide-out rooms and fold-up beds that appeal to the modern, more active RV enthusiast. Winnebago already has one new-generation hit in the Travato, a camper van that comes in a sporty red or silver with bike and kayak racks. It has become a top seller for the company, and management hopes that the Travato might lure some younger customers. With that in mind, Winnebago has also gotten back into trailers by acquiring SunnyBrook in 2010. They start at $15,000 and are both a larger market and a gateway product. Getting more mileage out of the company’s iconic brand is part of the growth plan that Potts has put in place. The company is working on licensing deals that will soon result in Winnebago-brand camping and tailgating gear. All of this gives classic old Winnebago a fresh (or in the case of the Brave, retro) look, but the company is hardly giving up its old tricks.
The economy is looking sturdier, and those favorable demographic tailwinds are picking up. In April, Winnebago unveiled the 42-foot long, $420,000 Grand Tour. With an electric fireplace, a ceiling fan, and a bed festooned with a half-dozen throw pillows, it is Winnebago’s most luxuriously outfitted motor home yet. Potts certainly wants to avoid, or at least soften, the next RV bust. But there is no reason not to enjoy the current boom as much as he and his customers can.
Sources:
1. http://buswk.co/XraM5I – BusinessWeek
2. http://bit.ly/1oQJyQq – Fortune
The Good News Is . . .
• Confidence among U.S. consumers rose for the first time in three weeks on the strength of cheaper fuel costs and an improving job market. The Bloomberg Consumer Comfort Index advanced to 36.8 in the period ended August 10 from 36.2 the prior period, which was the lowest level since June 8. The gain was led by improving views on household finances and the economy. The Bloomberg Consumer Comfort Index is a weekly, random-sample survey tracking the views of Americans on the condition of the U.S. economy, their personal finances, and the buying climate.
• The Priceline Group, Inc., a leading firm in online accommodation reservations, reported earnings of $12.51 per share, an increase of 29.0% over year-ago earnings of $9.70. The firm’s earnings topped the consensus estimate of analysts by $0.47. The company reported revenues of $2.1 billion, an increase of 26.4%. Management attributed the company’s results to a robust summer travel season and strong growth in its global accommodations business.
• The Coca-Cola Company announced that it acquired a 16.7% percent stake in Monster Beverage for $2.15 billion. The deal unites the biggest soda maker in the world with the largest energy drink brand in the United States. Access to the fast-growing market for highly caffeinated beverages will help Coca-Cola offset the slowing growth of soda sales and connect it with a younger generation of consumers. Coca-Cola can increase its stake in Monster to 25% through purchases on the open market, or through a negotiated transaction with the company. But Coca-Cola is prohibited from increasing its stake further for four years without Monster’s approval.
Sources:
1. http://bloom.bg/1bidM2T – Bloomberg
2. http://www.cnbc.com/id/18080780/ – CNBC
3. http://bit.ly/1vWmfJD – The Priceline Group, Inc.
4. http://nyti.ms/XlqFuy – NY Times Dealbook
Planning Tips
Tips for Understanding Your Medical Bills
Billing errors or overcharges that leave patients in the lurch could become a bigger problem in the future, as high-deductible plans make consumers responsible for more of their up-front medical costs. If you have found mistakes and are thinking of disputing a medical charge, here are some tips to guide you.
Keep good notes – From the very first phone call, write down the date, time, and the name of the person to whom you speak. Often, with insurance companies especially, you cannot ever get back to the same person. So you have to be able to say, “On August 12, I spoke to Debbie, who said XYZ.” Start with someone in charge of billing who can work on it for you. Keep calling until you get the right person on the line. Be both patient and persistent, because you will likely have to go through several levels when you challenge a bill. After your initial call, put your request in writing and mail it.
Request an itemized bill – If you are questioning hospital charges, you will want to ask for a bill that details every single charge individually. That may be called a line-item or detailed bill.
Do your research – You cannot refuse to pay a charge just because it feels excessive to you. When you make a challenge like that, you need some basis on which you think the amount is excessive. In other words, you need some idea of what that procedure might cost elsewhere, or in general. Start with a site such as HealthcareBluebook.com, which can help you estimate prices for a procedure in your area. Alternatively, some insurers offer a way to price healthcare services, such as UnitedHealthcare’s myHealthcare Cost Estimator. If you know someone who had the same thing done and you know how much they were charged, that is also a valid comparison.
Don’t worry about your doctor or your creditworthiness – Many people are afraid to question a charge because they feel they will not get good treatment from the doctor or hospital afterward. But in fact, most of the time a doctor does not even know what the costs of their services are because they use outside billing agencies. If you have medical debt on the books, it will no longer devastate your credit. In the new FICO scoring system, medical collections debt will have less impact on your credit score—a welcome change for consumers struggling to pay bills from a serious illness, or who are not even aware that they have a medical bill in collections.
Get help if you need it – If you are really overwhelmed or facing an enormous amount of medical debt, consider talking to a medical billing advocate, who can help you locate errors in your bills and haggle with healthcare providers on your behalf. Billing advocates sometimes charge an hourly fee of $50 to $200 or take a percentage of whatever they save you, up to 35%. Look for someone who will offer an initial consult free of charge, and who has a proven track record along with tough negotiation skills.
Sources:
1. http://on.mktw.net/1rfOnWc – MarketWatch.com
2. http://bit.ly/1laTRPo – eHow.com
3. http://aol.it/1qg8Kfl – Daily Finance
4. http://onforb.es/1rfOoJz – Forbes
5. http://on-msn.com/1BoTjds – MSN Money
6. http://bit.ly/1m6Yipl – SavvyCredit.com
7. http://huff.to/1qg8Pj4 – HuffingtonPost.com
