Macro View of the Upcoming Economic Environment
Bottom line is that the U.S. and Global Economics are slowing. ITR anticipates a weaker fourth quarter 2019 extending into mid-2020 due to a variety of issues, including the trade war and geopolitical issues such as Brexit, Iran/Saudi Arabia, Italy and Turkey/Syria. Originally, they predicted an early 2020 recovery but they have pushed it back into the second half of 2020 – just in time for the elections.
Retail Sales – which make up 75% of US GDP – have flat lined since our last update. We now anticipate this metric will stay flat into early 2020 but will likely avoid a recession. Key attributes are full US employment, rising wages, low inflation & declining interest rates.
Construction – Many Non-Residential segments will grow in 2020 and 2021. US Single-Unit Housing Starts will recover very soon and transition into a growth trend in 2020.
Manufacturing – Activity trended lower with the overall economy with some areas, Machinery (Metalworking & Construction) and Light Vehicle Production entered into recession. However, we anticipate the majority of this sector to transition into accelerating growth by mid-2020.
Specific Items to Consider at the Macro Level
- Consider focusing on training initiatives and new process efficiencies during this period of waning activity so you are prepared for a rise in production by late 2020.
- Consider implementing technology enhancement since they will be harder to implement late next year, when growth returns.
- If possible, resist laying off labor during the upcoming industrial recession, as employees will likely be needed when US Production reaches record highs in 2021.
- Consider renegotiating long-term leases early next year to take advantage of the soft pricing environment.
- As confidence in the economy declines, it will become increasingly important to communicate the value of your products and services. Ensure your clients understand the unique benefits your company provides so they will be less inclined to seek substitutes as the business cycle declines.
If you are in the Construction Industry, here are some items they may want to consider:
- Overall theme: Despite the overall softness in this industry, it will be a source of growth potential through at least 2021. Construction in 2020 will approach the pre-Great Recession peak. Evaluate your capacity needs and, in necessary, finance additional equipment at today’s low rates. Invest Accordingly.
- Non-residential construction is expected to expand in early 2020.
- Avoid committing to long-term expenses at this time.
- With a tight labor market, consider what non-monetary benefits you can provide employees.
- Consider implementing cost-cutting measure to weather the decline into early next year but be cautious about cutting labor, as the labor market will remain tight through 2021.
- Residential construction is continuing to slow but the decline will be brief as interest rates trend lower. Expect the slowdown to continue through the end of 2019 then recover into 2020.
- Ensure you have quality control measures in place to accommodate increasing volume in housing Starts during 2020 and most of 2021.
If you are in the Manufacturing Industry, here are some items they may want to consider:
- Overall Theme: This segment of the economy is in decline with few areas potentially providing growth opportunities. However, as the business cycle recovers through late 2020, opportunities for growth will emerge. Build up your cash reserves now to prepare your company to take advantage of the upcoming growth trend next year.
- Also consider;
- As the US economy moves along the back side of the business cycle into 2020, be aware that consumers are likely to be more price sensitive.
- Consider offering alternative products with a lower cost basis, as they will likely outperform higher-cost products at this time.
- Be cautious of trimming capacity in response to slowing activity this year, as the latter half of next year will bring record levels of activity.
- Target markets expected to rise during the coming year, such as the wood products markets, if you have the ability to do so.