Sunday, August 04, 2019

How To Do Product Management Without Product Profitability

Quick answer: I don't know.

I posited this question on Twitter because product management has come up during various financial institution strategic planning sessions. I also don't know of many new banking products since I've been in the business. See my post on that subject here from nearly two years ago.

But product management is a function that is performed, at some level and degree, in most financial institutions. Even if they have no title Product Manager. But if you don't measure product profitability, I'm not certain what financial institutions are managing to.

The video below discusses how Product Managers can use profitability information to improve the profitability of products and ultimately their institution.





How do you do Product Management?


~ Jeff

Thursday, August 01, 2019

Guest Post: Financial Markets and Economic Commentary by Dorothy Jaworski


Financial Markets & Economic Update- Third Quarter, 2019


Summer is upon us and I cannot wait to get to the beach for vacation.  What an amazing ride it’s been this year for bonds!  Interest rates continued their steep decline into the second quarter.  Longer-term interest rates are down more than a full 1.00% since their highs last November.  GDP was +3.1% in the first quarter of this year, but many are projecting growth of less than 2.0% for the second quarter.  Housing looks weaker, with much lower year-over-year increases in prices and volatility in new and existing home sales.  Business confidence and manufacturing fell during the second quarter, mostly the result of trade wars.  China reported growth of +6.2% in the second quarter, which was the lowest there since 1992.  All of this led to interest rates falling month after month in 2019. 


Although business confidence fell from the uncertainty, stock markets were reaching new record highs on many of indices.  One exception was small cap stocks, which did not fare as well as larger companies, due to the Fed raising rates.  Consumers are benefiting as the unemployment rate is at 3.7% in June, wage growth is at +3.0%, and job openings are plentiful; there are openings of 7.4 million, which is over 1.4 million higher than the number of unemployed persons.  The Federal Reserve has expressed concern, through Chairman Powell, that inflation has not met Fed targets of 2.0% and is at risk of falling.  Core PCE has only exceeded 2.0% in eight of the forty-one quarters since 2009.  The Fed may lower interest rates to give inflation a boost.  Think about that for a minute…


Leading Indicators & Yield Curves


The index of leading economic indicators, which forecasts growth six to nine months from now, has stabilized in the past few months, after a very weak series late in 2018.  The “LEI” was unchanged in May, after rising by +.1% in April, +.2% in March, and +.2% in February.  We should continue to have slow GDP growth later in 2019, based on this indicator.


The leading inflation indicator, or ECRI future inflation gauge, has been falling on a year-over-year basis and is forecasting low inflation six to nine months from now.  The “FIG” has been dropping all year, with year-over-year changes in June of -3.6%, May -3.7%, April of -2.2%, and March -2.6%.  Fed Chairman Powell, you are right.  The forecast for inflation is that it will be weak.  Slow growth, low inflation, it sounds like a broken record…


One of the best leading indicators for the economy, surprisingly, is the Treasury yield curve.  Steep, or positive, yield curves predict economic growth and higher interest rates.  Inverted curves indicate slow growth, or recession, to come along with lower interest rates.  Flat yield curves show stable rates.  We are between the flat and inverted yield curve now, based on different sections of the curve.  The 5-year to 2-year and 10-year to 3-month yield spreads are now at 0%; the latter was inverted by .20% one month ago.  The 10-year to 2-year spread is at .26%; this is usually the first spread to invert, yet it remains positive.  Today, the yield curve is telling us that growth is coming under pressure but it is not forecasting recession at this time.


The yield curve can remain flat or inverted for very long periods of time.  For example, the inverted curves that preceded the two recessions since 2000 remained that way for over a year (average of 13 months) before steepening.  The spreads of the 10-year to 2-year and 10-year to 3-month also have a long lead time before signals of a downturn are seen.  The 10-year to 2-year spread inversion precedes a decline in the LEI by 9 to 12 months.  Both spread inversions precede recession by 13 months (as in 2000 for the 2001 recession) to 26 months (as in 2006 for the 2008-2009 recession).   By the time recession begins, the curve will be steepening again.  Historically, the Fed has been slow to cut rates after the curve inverts, but Fed Chairman Powell indicated a willingness to cut rates sooner rather than later.  This can prolong the recovery and postpone a recession.  It may also be an acknowledgement that the last rate increase at the end of 2018 was too much or that the neutral rate was much lower than they believed.  (Thanks to a Zero Hedge article for these timeframes).


A New Record


OMG, we made it!  Economic growth continues this month, marking 121 consecutive months of growth, setting a new US record for expansion.  We just beat out the March, 1991 to March, 2001 record of 120 months, making this the longest expansion since 1854.  But we did so with growth that was unusually slow compared to the prior record.  Since June, 2009, GDP has risen a cumulative +25%, compared to +42.6% from 1991 to 2001.  Job growth was slower as well, with jobs having risen +12% since 2009, slower than the rate of +17% from 1991 to 2001.  (Thanks to a CNBC article for these statistics).


The Outlook


I am sticking to my forecast of real GDP growth of +2.0% to +2.5% this year, following +2.9% in 2018 and +3.1% in the first quarter of 2019.  Although the economy is looking a little bit tired, I believe that consumers will continue to spend, with retail sales rising, albeit with some volatility.  Job growth should continue and increasing wages and falling gas prices will encourage consumer spending.  Inventories should not contribute as much to growth as they did in the first quarter, so a ratcheting down to the level that we have experienced since 2011 of +2.2% is a conservative projection.  I am assuming that businesses rise out of their pessimism, manufacturing and housing pick up, and that some kind of trade deal with China gets completed.  And government spending will continue at high levels.  Inflation should remain below the Fed’s target of 2% and this will keep longer-term rates low.


Speaking of high government spending reminds me that the biggest issue in this current economic recovery has been the high amount of debt at all levels- government, business, and consumer.  As I have written before, high debt levels put a cap on GDP growth, with low inflation and low interest rates.  High debt keeps the velocity of money low (still at 1.46), which weighs on GDP.   Just ask Dr. Lacy Hunt.  By the way, we will be seeing him at a seminar during August!


Recession is likely 13 to 26 months away.  We are in a prolonged period of low interest rates and have been since 2009.  The Fed tried for three full years to break us out of the pattern but they did not ultimately succeed.  We fell right back to equilibrium, as we always do.  We are in for a period of low interest rates, until recession is behind us.  If rates rise in the interim, these higher rates cannot last.  The Fed will ease, but it is a guessing game as to when.  Some say they will ease later this month.  That’s fine and they will probably follow it with another cut later this year.   



There’s nothing to worry about, right?  Nothing that a few days on the beach cannot solve…



Enjoy the summer!  Thanks for reading!  DJ 07/16/19





Dorothy Jaworski has worked at large and small banks for over 30 years; much of that time has been spent in investment portfolio management, risk management, and financial analysis. Dorothy has been with Penn Community Bank and its predecessor since November, 2004. She is the author of Just Another Good Soldier, and Honoring Stephen Jaworski, which details the 11th Infantry Regiment's WWII crossing of the Moselle River where her uncle, Pfc. Stephen W. Jaworski, gave his last full measure of devotion.