Companies trimmed the fat

Daily Data: The mystery is who is the fat that got trimmed?

In today’s dispatch:

• The Year of Efficiency is rather a thing to behold

• A clever way of visualizing ‘more with less.’

• But who was the fat that got trimmed?

• No love for the little guys

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Companies trimmed the fat (audio)

Companies trimmed the fat

One of the more impressive things over the last ~1.5 years is how ruthlessly efficient companies learned how to be.

With rising capital costs (and rising every other cost), plus doomsday expectations around the corner, BigCos, techcos, and seemingly most other Cos, pulled off quite the feat: they got lean in a hurry. Cut costs, get disciplined, be sharp like knives.

They did what Random Walk long ago declared they must do: more with less.¹

Enterprises were dealt quite the hand.

Less cheap capital, less cheap labor, and less cheap energy (in fits and starts), but no “more” of particularly anything, except for steady expectations for growth. Everyone, myself included, was skeptical the poster-children of ZIRPian excess would be able to manage the new-normal, but they did. They pulled it off, and they didn’t even have to fire that many people in the process (except for tech).

Look at those margins, magnificent [seven] beasts, you.

6 percentage point margin improvement for the biggest of cos

BofA

It’s pretty amazing, really, and a testament to the acumen and adaptability of much maligned “corporate America.”²

But it’s also been something of a mystery to Random Walk.

With all that cost cutting, it’s not immediately obvious where those costs were cut from.

The trimmers became the trimmed

In the longer run, efficiency is a positive sum game, but in the short run, if enterprises are cutting costs left and right (and it’s not headcount), then some other enterprise has be realizing those cuts as lost revenue. Which enterprises were those, I wonder?

Consider this clever visualization of the year of efficiency.³