Even as restrictions ease and the US economy resumes a more predictable trajectory post-pandemic, we're noticing a palpable sense of angst among some of our clients. It seems the more apparent the normalization, the more we expect the chair to be pulled from under us as the universe intones its catch phrase: "Just kidding!"
The solution is not easy, but at least it's simple: Don't be sitting down in the first place.
Disruptions will occur. They do not have to come in with the ferocity and wingspan of 2020's black swans – the onset of the pandemic and the exacerbating oil price crash – to cause severe pain in at least one place and ripple effects in many others.
Several such events occurred in 2021:
Do you remember the drought that impacted the western third of the US during the 2021 growing season? The economic impact was significant. From the end of the first quarter through the end of the third quarter, quarterly US Food Production rose just 1.4%. Seasonal rise of 5.5% is the norm for that time period.
There was also the deep freeze that occurred in the central and southern US during the early part of 2021. The impact was observable in US Oil and Gas Extraction Production. The monthly reading in February declined 11.1% from January, the worst such result in the 75-year history of the dataset. Furthermore, the impact flowed into plastics, a petroleum derivative, with US Plastics and Resin Production declining by more than a quarter during the month. Supply chains were snarled further. Even Retail Sales took a hit.
Remember the West Coast port backlog? The sardonic satellite-view photos of the Suez Canal blockage? The disruptors are numerous.
Some are happening now:
In rural Peru, a group of residents of the country's Chumbivilcas province in December aired their grievances with a Chinese mining firm by blocking the road to the firm's nearby copper mine, preventing access and therefore operation and extraction. According to Reuters, the villagers have been protesting the Las Bambas mine since its 2016 opening . The mine reopened after the December blockade but as of this writing had been re-blockaded, and the mining company has indicated a potential shutdown by late February if a long-term resolution is not reached.
The situation has certainly challenged companies that source copper inputs from the Chinese company, MMG Ltd. , and the world is paying attention. Las Bambas is one of the largest copper mines in Peru, which is itself the world's second-largest producer of copper.
Standing up
How do you prepare for such events? You are unlikely to think of every contingency, so your best defense is a good offense. One strategy is to be on good terms with a banker when times are good. Build the relationship when you don’t need the money. Then, when the day comes and you do need a loan or a line of credit, you are not trying to borrow money while in a bind.
Additionally, always know what phase of the business cycle you are in. Calculate your rates-of-change and compare them with those of your economic drivers. Knowing what phase of the business cycle you and your associated markets are in enables you to make sound strategic decisions. If you need help, this analysis is a specialty of ours.
Phase Matters
For overall US Industrial Production – our benchmark for the industrial sector – Phase B, Accelerating Growth, is about to end, and Phase C, Slowing Growth, is about to commence. This means that demand will be rising at a slower pace, and manufacturers and producers will have room to breathe. For more insights on the slowing growth trend to come, and to stay abreast of potential disruptors as they occur, consider subscribing to the ITR Trends Report™. A free trial is available.
