ITR Experts Say Recessions

Limit Your Exposure to the Upcoming Recession

By ITR Economics on March 21, 2023

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One way to mitigate the pain that will accompany the industrial sector recession we are forecasting for the second half of 2023 and through 2024 would be to focus on markets that are not expected to contract.

In the manufacturing world, these are few. Of the 14 manufacturing markets we cover in the ITR Economics Trends Report™ – which run the gamut from machinery to heavy-duty trucks to chemicals – only two do not have Phase D, Recession, in the outlook. They are US Food Production and US Defense Capital Goods New Orders.

It will not be possible (or in your interest) to change your business from manufacturing air valves to canning jelly ahead of the year-over-year industrial sector contraction we anticipate will commence in about half a year. And you will not be suddenly making the switch over to missile production, let alone be getting a contract for such work.

However, identifying recession-resistant markets can still benefit your company. What characteristics do such markets have? For Food Production, it is relatively simple – food will always be in demand, so long as there are people who eat. You do not have to produce food yourself to benefit from the inelasticity of demand for food. Perhaps you can target customers connected to food manufacturing; if you have a few or even just one customer that will be insulated from recession, you will be better off than with none.

Some markets can be havens in a recession not because they are recession-resistant per se but because of the timing of when they fall into and climb out of recession. The single-family housing construction sector, for example, leads the macroeconomy by about three quarters. US Single-Unit Housing Starts entered Phase D, Recession, in the third quarter of 2022, and we are forecasting that it will commence business cycle rise (Phase A, Recovery) in the third quarter of 2023, with actual rise in the 12-month moving total beginning in the fourth quarter of this year. Those in the housing construction market – and many of those closely tied to it – are contending with relatively difficult times now, but their industry will likely be turning up in several months, even as the situation in the industrial sector deteriorates.

Leveraging recession-resistant or “already-recessioned” markets is one part of a recession mitigation strategy, and it may not be feasible for all companies. We have also advised our clients that a larger cash cushion will help them weather difficult times and could come in handy as capital goods from distressed companies – or even said companies themselves – become available at the bottom of the business cycle.

Such opportunities are not the only silver lining of the upcoming recession. The leadership exhibited and strategies executed during this relatively mild downturn will help season relatively new business leaders ahead of the “main event” in the 2030s – the second Great Depression that has long been forecasted by ITR Economics. For more strategies for the upcoming industrial sector recession, as well as insights into leveraging it as “depression practice,” join ITR Economics CEO and Chief Economist Brian Beaulieu and Economist Kyle Stevens for their March 23 webinar, “Economic Storm Watch,” at 2:30 p.m. ET.

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