We should never make much of a single day’s stock market moves. After all, even the crash of 1987, in which the Dow dropped 22% in one day, didn’t portend a recession, and there’s an old saying that the market was predicted nine of the past four recessions. But still, yesterday’s global plunge in stocks – down 7% in China, down 2.2% in the U.S., down 2.5% in Europe – is just one of several accumulating signs that just maybe a downturn is on the way. Among the others:
-Manufacturing contracted for a second straight month in December, the Institute for Supply Management reported yesterday. Activity is now at its lowest level since the last recession.
-Construction was weak in November, the Census Bureau said yesterday.
-The U.S. economy apparently grew even more slowly last quarter than economists had thought. The Federal Reserve Bank of Atlanta yesterday revised its 1.3% estimate of fourth-quarter growth down to 0.7%. J.P. Morgan Chase cut its estimate from 2% to 1%.
Does all of this add up to anything? It’s easy for business leaders to tell themselves it doesn’t. The economy is almost never hitting on all cylinders, and some recent signs are encouraging. Consumers are spending with enthusiasm; they may buy more cars this year than ever before, for example. But wise business leaders are always fighting our remarkable human tendency to delude ourselves about bad news.
That’s why former General Electric CEO Jack Welch liked to tell his managers, “Confront reality as it is – not as it used to be, not as you wish it were, but as it is.” So obvious, yet he had to keep saying it. Even when conditions turn clearly terrible – historically terrible – many leaders still can’t fully accept the new reality. I’ll never forget J.P. Morgan Chase CEO Jamie Dimon marveling at such leaders at a Harvard Business School conference in October 2008 – the most acute moment of the financial crisis. “I am shocked at the number of people who are watching that train [recession] coming down the track, and they’re still worrying about their strategic plan for 2009,” he said. “We cancelled all that stuff – all of it – meetings, trips, travel, you name it, to focus on the fact that we’re in the middle of a real crisis.” The economists who declare recessions still hadn’t done so. He wasn’t waiting for them.
Caterpillar came through that recession far stronger than through any previous one, and the reason is clear. Long before the recession hit, then-CEO Jim Owens had forced company managers to devise a “trough strategy” for bad times. They hated it. But when Cat’s business “really drove off a cliff” in the autumn of 2008, CFO Ed Rapp told me, “we didn’t have to scurry around. We said ‘Pull the trough plans and do it now.’”
Maybe today’s troubling omens don’t mean anything. But the best business leaders will be those with the fortitude to imagine right now that they might.
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What We're Reading Today
Three NFL teams file to move to L.A.
The owners of the San Diego Chargers, Oakland Raiders and St. Louis Rams have asked the NFL to allow them to move after not coming to agreement with their respective cities to build new stadiums. Rams owner Stan Kroenke has proposed building a stadium in Inglewood, while Raiders owner Mark Davis and Chargers owner Alex Spanos have jointly offered a plan in Carson that would house both teams. NFL owners will meet on Jan. 12-13 to determine which teams, if any, will move. ESPN
Obama to announce executive orders on gun control
The plan, which includes 10 provisions, will force more online and gun show sellers to get licensed and increase background checks on buyers, force manufacturers and sellers to report lost guns, and increase the number of examiners to verify background checks at the FBI. Republicans, including House Speaker Paul Ryan and Senate Judiciary Committee Chairman Charles E. Grassley, said they would review the legality of Obama's proposals and chided him for taking this action. Washington Post
China probes Microsoft for anti-trust
The State Administration of Industry and Commerce has asked Satya Nadella's company to explain "major issues" about its Windows operating system. The industry regulator did not go into detail over what issues it needed addressed, but it's believed to be related to the launch of the 2014 operating system. Reuters
Waltons give away $407 million in Wal-Mart shares
Alice, Rob and Jim Walton gave 6.7 million shares to the Walton Family Holdings Trust, the family's philanthropic vehicle, to sell. It was an effort to keep the family's stake in Wal-Mart under 50%. In April, the family's holding company said it would distribute 6% of its shares, which is valued at around $15.6 billion, to the Walton Family Holdings Trust to distribute. Fortune
Building a Better Leader
Tech companies can build wealth...
...but they're not building employees. Only 0.5% of the U.S. workforce is employed by industries that didn't exist in 2000. Fast Company
In order to tackle the to-do list...
...first figure out what you can eliminate. Fortune
There are downsides to only focusing on a team's strengths...
It can give people a false-sense of ability and it hasn't actually been proven to work. Harvard Business Review
Car Routes
The U.S. sues Volkswagen
The Justice Dept.'s complaint, filed on behalf of the EPA, claims the cheating software discovered in nearly 600,000 U.S.-based vehicles broke public trust, endangered health, and gave VW an advantage over competitors. CEO Matthias Müller and his company face fines that could reach $18 billion for violating the Clean Air Act. Meanwhile, the House of Representatives is considering action dubbed the "VW Bailout Bill" by limiting class action lawsuits for faulty products that didn't cause bodily harm. ABC News
Mary Barra named Chairwoman at GM
It consolidates power at the company for Barra and recognizes her leadership through the ignition switch crisis, which led to 2.6 million recalled vehicles and surfaced during her first days as CEO. Historically, GM CEOs held the chair role as well, but that changed following the 2009 bankruptcy. She replaces Theodore Solso, who will continue on the board as an independent director. NYT
Ford to up its autonomous vehicle plans
CEO Mark Fields says the company will increase the number of self-driving Fusion Hybrids it's testing on the road to 30 this year. It's also testing a smaller vehicle design to reduce the number of sensors that prevent the car from crashing into another object from four to two. This could also cut the cost of the car. Fortune
Up or Out
Target has parted ways with chief stores officer Tina Tyler. Fortune
Fortune Reads and Videos
Starbucks adds new menu item
The Latte Macchiato adds a sixth drink to its "core menu." Fortune
Fulfillment services has become one of Amazon's...
...fastest growing businesses. Jeff Bezos's company handled the warehousing and shipping of 1 billion items sold by third parties last year. Fortune
Yahoo shutters its online video hub
And it's investing in more original video content available on "digital magazines." Fortune
GM invests $500 million in Lyft
GM hopes to one day deploy its self-driving cars through the service. Fortune
Today's Quote
“And although it is my strong belief that for us to get our complete arm around the problem Congress needs to act, what I asked my team to do is to see what more we could do to strengthen our enforcement...And the good news is, is that these are not only recommendations that are well within my legal authority and the executive branch, but they’re also ones that the overwhelming majority of the American people, including gun owners, support and believe in.” - President Barack Obama discussing his executive orders on gun control.
“The president is at minimum subverting the legislative branch, and potentially overturning its will. . . . This is a dangerous level of executive overreach, and the country will not stand for it.” - House Speaker Paul Ryan responding to Obama's plans. Washington Post
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