ITR Economics is the oldest, privately-held, continuously operating, economic research and consulting firm in the US.
Earlier in April, ITR Vice President of Economics Jackie Greene issued a pointed warning to our readers: Just because we have forecasted a "soft landing" – or no-recession scenario – for the US macroeconomy in 2023 doesn't mean you should assume your particular markets or company will avoid recession.
Now let's consider that no-recession outlook from another angle. Just because your company or markets are among those likely to avoid recession doesn't mean you should expect business as usual and smooth sailing.
Phase C Pitfalls
What do we mean when we say we expect a market or business will "avoid recession"? For us at ITR Economics, it means that Phase C, Slowing Growth, will not progress into Phase D, Recession. In other words, growth will occur at a slowing rate, but on a year-over-year basis, you will not fall below the year-ago level.
But slowing growth alone can present real challenges. Market participants enter Phase C after having grown accustomed to the previous trend – Phase B, Accelerating Growth. It is natural to attribute certain successes achieved during Phase B with actions we took or decisions we made. In many cases, justly so. In others, the macroeconomic and market-specific forces were the underlying drivers of our success, propelling us upward even through "wrong" decisions.
In Phase C, the results of our actions can more easily be seen. This Phase C in particular will bring several characteristics that require careful navigation.
For many businesses and companies, the rate of growth at the bottom of this business cycle will be quite slow indeed.
While you will be above the prior year on a year-over-year basis, many businesses should expect relative flatness in their 12-month moving averages or totals (12MMT/A) for a couple quarters near the bottom of the business cycle.
Low rates of growth can be especially challenging amid an environment of relatively higher inflation, which we are expecting will persist this year, though it will moderate as 2022 progresses. Subscribers of the ITR Trends Report™ know that a portion of the ongoing and anticipated growth in various dollar-denominated market metrics is and will be attributable to rising prices.
Given this, business owners will need to track their performance in both units- and dollars-based measures to gauge inflation's impact and understand whether their companies are posting "real" growth in activity as well as in dollars.
A lack of real growth during this time could indicate a market share loss that will manifest as diminished buoyancy when macroeconomic cyclical rise returns to lift all in the harbor.
Ready to Mount an Offense
We often warn our clients not to assume that their high rates of growth will continue indefinitely, but straight-line thinking is folly in the other direction, too. Our soft-landing outlook anticipates that accelerating macroeconomic growth, not contraction, will follow this year’s slowing growth trend.
This means that any measures taken to mitigate the potential impacts of Phase C should not go so far as to inhibit an organization's ability to mount an offensive. In fact, this cyclical downturn – during which consumer demand will remain robust – will demand that companies continue their offensive amid the risks. For help in striking that balance, please contact us.