Though the particulars may vary, our overarching advice for budget season never really changes: Use a data-driven approach to remove emotions from the picture as you plan for the following year.
But, more granularly, what datapoints should we pay specific attention to as we put together our 2023 strategy? Here are some key concerns business leaders are grappling with as we turn our eyes toward next year:
- Current GDP recession
- Tight labor market
- Inflation
- Margin pressures
GDP Recession
Generally speaking, the technical recession indicated by the latest GDP figures should not be a major concern for your business as you look forward to 2023. Of greater concern should be what is expected to occur in your particular markets. Also, be cognizant that we anticipate ongoing growth – not recession – for the industrial side of the macroeconomy.
- Emotional response: Batten down the hatches.
- Data-driven approach for 2023 budgeting and planning: Does the tick-down in GDP have implications for my business? What are the expected trends for my individual markets? Did COVID benefit my business while others were hurting, and will I now face some painful normalization trends? (The ITR Trends Report™ can help you answer these questions.)
Labor
Many of our clients have reported difficulties in hiring and retaining labor during the past two years. According to the latest US Bureau of Labor Statistics data, there are approximately 1.7 job openings per unemployed person. We expect the tight labor market to persist through next year and beyond.
- Emotional response: We better give everyone a huge raise and beg people to never leave.
- Data-driven approach for 2023 budgeting and planning: We need to make sure our wages and benefits are competitive, but we should also explore high-ROI automation initiatives and other creative solutions. Additionally, what other creative benefits can we offer our employees?
Inflation
Inflation will still be a factor next year, though the disinflation (declining inflation rates, not prices) we have been forecasting is beginning to materialize in metrics such as the Personal Consumption Expenditures Price Index (excluding food and energy) and the Core Consumer Price Index (which also excludes food and energy). On the producer side, we expect overall producer inflation to peak in the near term, in conjunction with slowing macroeconomic growth and some concurrent easing in the supply chain. Some input commodities – copper, aluminum, and lumber, for example – have declined in recent months as the initial shock of the Ukraine war has subsided and COVID-surge trends have moved toward normalization, but, as on the consumer side, we are expecting general producer-side disinflation, not widespread deflation, in 2023.
- Emotional response: We’re going to go broke if prices keep rising like this.
- Data-driven approach for 2023 budgeting and planning: Prices will keep rising, but the rate will ease. We need to be sure we are passing through our cost increases where possible. Watch out for contracts that bake in the current high rates of inflation, because the rate of inflation will go down.
Margin Pressures
Most of the concerns businesses face as they plan and budget for 2023 will come down to margins, which will contend with pressures via rising labor costs, inflation, etc. Since the onset of the COVID rebound, we have been advising our clients to watch their margins closely, or this year and next could result in “profitless prosperity,” wherein top lines rise while bottom lines stagnate.
- Emotional response: We’ve got to force that bottom line up by really focusing on that top line.
- Data-driven approach for 2023 budgeting and planning: We need to make sure our customers and potential customers appreciate our competitive advantages so that we can continue to sell our products at a healthy profit. Also, where can we be more efficient and cut down on costs – labor and otherwise – on our end?
Data and Insights
A data-driven approach is only effective when backed by sound data and insights. We are the oldest privately held and continuously operating forecasting firm in the US, and our track record of 94.7% forecast accuracy at four quarters out speaks for itself. If you need assistance in gathering and interpreting the data so you can save the emotion for the other parts of life, we are here to help.