The Key to the Long Expansion? Logistics

“You can’t recommend those stocks,” a Wall Street strategist insisted in 1986. “We’re in the third year of a four-year expansion. They won’t work.” Being naive, I did it anyway. The expansion lasted a total of almost eight years, until July 1990. Strategists don’t know much, but to be fair, it was a B-school accepted truth that expansions last four years. Another expansion began in 1991 and lasted a record 10 years. And this month we broke that record. Since June 2009, the U.S. economy has kept growing. Every day is another record.

Did you ever wonder why we are enjoying a decadelong run? What changed? Everyone wants credit. Was it the Federal Reserve and its relentless stimulus? Nope. The Fed creates the money the economy needs, but not the need itself. Obama or Trump policies? A divided Congress? Demographic shifts? A strong or weak dollar? Actually, none of the above. The answer is just-in-time. You can thank all those freshly minted consultants you see in premium economy crisscrossing the country with their AirPods and Allbirds and airy attitudes.

In the previous era, before pervasive computing, economies would live and die by inventory cycles. Heck, biblical times record seven years of feast and seven of famine. The expansion starts, consumers buy, investment and hiring ramp up, wages and prices rise, inflation emerges, consumers buy ahead of price increases, investment peaks, inventories build, consumers are tapped out, recession starts, inventories are drawn down, and layoffs begin—then start all over every four years. Until recently, price signals didn’t travel very fast, and inventory tracking used clipboards.

In a micro version of this cycle, the videogame industry had a huge bonanza in the early 1980s that ended in ’83 with bust of the highly anticipated “E.T. the Extra-Terrestrial” game. Warner Communications literally buried about 700,000 unsold cartridges of “E.T.” and other titles, and lost more than $500 million. The semiconductor industry got stuck with loads of chips in inventory that had to be written down. It was ugly. After a similar inventory mess related to then-newfangled personal computers, the tech world started implementing just-in-time delivery. Companies like Compaq would ask for chips to be delivered Tuesday for PCs shipped on Wednesday. This gradually smoothed out the cycles of a very volatile industry.

Thirty-six years later, much of the global economy has perfected this just-in-time supply chain. Digital cash registers and bar codes log consumer purchases. Logistics software allows manufacturers to track every production detail everywhere on the globe. Data is fed into giant databases that forecast demand. Manufacturing, transportation and retail are a highly choreographed water ballet of delivering inventory right before it’s needed. Exactly the right amount of toothpaste is magically dropped onto Walmart shelves each night.

Software is now a mind-bending cornucopia of supply-chain management, enterprise-resource planning, business-process re-engineering and decision-support systems—all of which barely existed 30 years ago. But here’s the dirty little secret: Enterprise software from Oracle and SAP and just about everyone else is notoriously hard to use, nasty to implement, and a royal pain to maintain. That means a virtual Full Employment Act for consultants—tens of thousands are hired yearly by PwC, Deloitte, KPMG, Ernst & Young—add BCG and McKinsey too—to customize and implement business processes.

I have to admit my eyes usually glaze over with images of paint drying when I hear these companies’ names. But consulting is booming. Deloitte consulting has grown by double digits in each of the past 10 years. Consulting is now a $130 billion global business. Of that, digital-technology consulting makes up some $50 billion. This software has become the lubricant for economic gears, preventing inventory from gumming up the works. “Consultants” are mislabeled—most are more like implementers, but that doesn’t look as good on a résumé.

Price signals move around the globe in nanoseconds instead of months and squash excesses before they happen. Analytics are also improving—and the field is heating up, as shown by the recent sales of Looker and Tableau. Next, we’ll see machine learning find patterns to squeeze out even more efficiency, putting goods in the right place at the right time. Productivity tools have stretched expansions beyond anyone’s belief and have expanded wealth the world over—see value created at public Salesforce and private Vista Equity Partners.

Have we forever tamed the cycle? Nah, because like white tigers in Las Vegas, outside events can still bite and maul economic growth—oil embargoes, terrorism, tariffs, wars, no-doc home loans, maybe leveraged loans next. The current expansion may have already ended for all we know, stabbed in the back by tariff daggers. But I don’t think so—this could go on for a while. Thank those airline-mile-accumulating consultants. Give ’em your unwanted peanuts. They know how to track them.