Horolonomics

In 1946, economists Arthur Burns and Wesley Mitchell provided a formal definition of business cycles.

Their conceptualization is extensive but one of the most important elements is the idea that cycles are "recurrent but not periodic." In other words, fluctuations happen over and over again, but they do not follow a regular pattern. In the world of horology, recurrent but non-periodic processes are familiar and a great challenge when it comes to tracking the passage of months and years (as well as other events like Easter). The end of a month recurs twelve times each year, but the length of a month is not always the same (and leap years mean that February has an extra day every four years, I'd rather not even begin to talk about leap seconds).

The past two years provide compelling evidence that the watch industry also follows Burns and Mitchell's business cycle definition. A familiar pattern emerged: the industry crossed a peak in the cycle and went from enjoying rising sales to the less enjoyable environment of reduced income and compressed profits (see this article on Swatch Group as an example). We can see this inflection point in Switzerland's official data on Réduction de l'Horaire de Travail, or RHT. I've written about RHT before but as a refresher, businesses in Switerzland are not limited to the binary choice of either a) continuing to employ a person or b) just firing that person. They have a third option. They can place the person into RHT, a government program in which an employee works fewer hours than normal but does not lose income because the Swiss government pays the difference between lower RHT earnings and an employee's full-time income if they were not working reduced hours.

The count of RHT claimants is a good indicator of the ebb and flow of the business cycle. During a slump, companies would generally not hesitate to place employees on RHT if sales have slumped because doing so does not harm employees (at least not financially) but it does reduce labor expenses and potentially improve a business's financial position. If we look at Swiss data for the watch industry during past recessions we can see this pattern clearly.

Take, for example, the Great Recession of 2008-9. Roughly 100 watch industry employees were on RHT throughout almost all of 2008. But by February, 2009 roughly 1500 employees were on RHT and the rolls continued to rise through September, at which point roughly 6,300 employees were on RHT. By September 2010, watch industry RHT declined to 1,122 as demand recovered and the Great Recession receded.

A similar pattern unfolded during the Covid - induced recession which started in March of 2020, althought the magnitude was far different.

In February of 2020, watch industry businesses had only placed 398 employees on RHT. But when the Covid lockdown began, more than 32,000 watch industry workers were placed on RHT. That number then began to retreat until, by December of 2021, only 231 watch industry workers were still on RHT.

The pattern of a sudden increase in RHT claimants followed by a gradual return to pre-crisis levels suggests the watch industry is experiencing yet another contraction in the current moment. In July 2024, there were 460 watch industry workers on RHT.

The data suggests that the next month (August) brands tried to reduce costs during the "watchmaker's holiday" at the end of summer because RHT numbers more than tripled to 1418. Interestingly, after the holiday was over, many watch industry employees seem to have returned to full-time employment: RHT dropped to 877. The turnaround was brief. Beginning in October 2024 and every month through March 2025 (the most recent month in which we have data), the number of Swiss watch industry workers on RHT never dipped below 1600. While it may appear that RHT claimants peaked in Jan 2025 at around 4,400, we can't quite draw that conclusion just yet. Sometimes data on RHT arrives with delay and requires a revision to published numbers.

Nonetheless, we can compare the current RHT data to prior watch industry downturnsc (next figure). I present those numbers for 14 months, as indicated by the labels on the horizontal axis of the figure. Month 1 corresponds to six months before the initial large jump in RHT claimants during a downturn. I present the data for two known downturns: the Great Recession (green) and Covid (orange) and divide each monthly value of RHT by its value in the first month of the data.

There are a few things we can conclude from the graph.

The first is that, broadly speaking, the current path of RHT claimants is similar to what happened during Covid and during the Great Recession. There is a large initial jump in RHT claimants followed by continued increases. However, the current slowdown is more modest compared to the severe downturns caused by Covid and the Great Recession. In many way this makes sense since the causal factor behind this downturn (a policy change on tariffs and regional conflicts) are more typical of the types of precipitating events we have seen in many other downturns (in other words, there is not a mass financial meltdown or global pandemic this time around).

It remains to be seen how quickly the watch industry will recover from the current "troubles." Although the magnitude of growth in reduced-hours work is smaller this time around, the buildup in "downsizing" is taking a longer time. During Covid, RHT began to recede only two months after the initial shock. RHT also showed a decrease five months after the watch industry began downsizing during the Great Recession, although that decrease was temporary (after nine months RHT consistently began to decline). There have been slight decreases in RHT during the current downturn but reduced hours work just seems a little more stubbornly high this time around. That impression is reinforced by the views of a highly experienced industry leader: Breitling CEO Georges Kern. Swiss publication NZZ recently quoted Kern as follows (translated from German): "I've been in the industry for 30 years now, and I've never experienced such a prolonged crisis. There have always been crises. After the collapse of Lehman Brothers, the lockdown, and so on. That lasted for three or four months—and then demand fell back. That's not the case now." That said, we should find solace in the wisdom of Mitchel and Burns: the cycle is recurrent. Downturns are always followed by recoveries. The only question is: when?

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