Updated: Feb 19, 2020
In August 2018, I predicted that we would have a recession in the U.S. in 18 to 24 months. I was writing a paper for a capital markets class at Harvard, which was part of a graduate certificate in corporate finance that I have since completed.
I have been accused by of being “bearish” for nearly two years now, as fellow Board Directors, venture capitalists and friends in finance give me the side-eye when I layout the argument for what I am seeing in the media industry, which is an untapped bellwether for America’s economic ups and downs. Regardless of whether or not my prediction proves true, I now have another confirmation signal, which is the fact that VC money is less excited about digital startups, and banks will not lend to them the way they once did.
Let's face it, market sentiment is based on human psychology. Its drivers are [drum roll, please]... expectation and hope, masked by research and analysis, all of which get priced into current stock values and then subtracted when things don't go as planned.
So, what are the other practical signals I have been seeing over the past two years?
· Slowing revenue growth
· Stagnant wages that are not increasing at the rate of inflation
· Price hikes that the consumer does not tolerate (Hello, Netflix!)
· Lower profit margins
· Employee layoffs
· Treasury stock that is underwater, because companies used the 2017 tax cut to buy back their own stock, instead of investing it in projects or raising employee wages
How does this relate to Millennials and Gen Z? It is good news for corporations and bad news for younger generations. Let’s unpack that quickly.
1) It has been widely reported that Millennials are behind other generations in their earnings, because they started entering the workforce just as the Great Recession hit. As of 2016, more than 32% have had to move back home with their parents at some point since graduating college. As a generation, they are not able to retire by the age of 65. In addition, their student debt and credit card debt are suffocating them.
2) Gen Zers were just kids when the Great Recession hit, and they watched their parents get laid off from corporate jobs and suffer financially. This is a generation that would rather put their money in a mattress or invest in a friend’s startup than put it in a bank or the stock market. They are also a generation that jumps from job to job, because they came of age during the best economy this country has seen in decades. I have watched firsthand as my Gen Z employees leave their corporate jobs after just 18 months to work at startups with cool perks and equity. That will start to change.
3) All of this benefits Corporate America. The job-hopping trend is hugely expensive for companies. It costs an average of 1.5x an employee’s salary to replace them. Obviously, in a booming economy with a low unemployment rate, talented workers are in high demand. That will change in a recession. Moreover, companies that have invested a lot in corporate culture and perks, may back off of those “soft costs” during a recession.
Obviously, we will see what happens; however, I caution corporations from moving too far away from focusing on culture. While positive corporate culture is something that gets a lot of attention in a boom economy and gets the short shrift during a recession, we have raised two generations for whom work-life balance is vital and workplace wellbeing is more important than material benefits.
If you are interested in learning more about how to navigate this period with your younger workers, I give a corporate talk about this very topic. It’s called “Culture Shock: Surviving Five Generations in One Workplace.” Feel free to contact me through JDMA‘s website.