Remember the warnings we issued in late 2020 and throughout 2021 regarding the “positive problems” that tend to accompany business cycle rise – especially steep business cycle rise, such as the rebound that followed the COVID shutdowns?
Well, the positive problems are still with us, and they are still positive, but in a different sense. The same factors that were bumps (major potholes in some cases) during the business cycle ascent in 2021 are now helping position us not for the doomsday scenario painted by headlines but for a soft landing ahead. Yes, some markets – particularly those that experienced unsustainable demand-pull in 2021 and 2022 (Peloton, household furniture, etc.) and that deal in longer-term purchases – will undergo more of a letdown. But for the general macroeconomy, we anticipate a soft landing.
Supply Chain Issues Amid Elevated Demand
In 2021, many business leaders contended with supply chain hold-ups as they climbed out of the COVID hole. After the 2020 shutdowns, we observed the difficulties inherent in turning everything back on all at once. Reforging links in the supply chain proved much more time consuming than severing them was. With rolling delays and shortages of inputs needed to fulfill all the orders coming in, manufacturers’ backlogs grew.
Today, our clients and the trade associations we consult with are telling us that these factors have yielded extended backlogs.
Now those backlogs are helping fuel continued industrial growth even as immediate demand slows.
- Silver Lining: The supply chain issues that hindered post-shutdowns growth have, in a sense, contributed to the conditions enabling continued growth on the back side of the business cycle today and moving into next year, particularly for manufacturers and wholesale trade.
Tight Labor Market
A tight labor market, too, has been a sore spot for business leaders throughout the COVID rebound and into the slowing growth phase of the business cycle we are in now. We anticipate that employers will need to resort to creativity to both attract and retain talent into at least mid-decade.
From the employee’s perspective, however, the labor shortage is beneficial. Jobs are generally available for those who want them, though that may vary by market and geographic region. According to US Census Bureau data, there have been about two job openings for every job seeker for most of this year.
- Silver Lining: While the tight labor market may be a pain point for businesses across the US economy, it works to the advantage of those who ultimately drive demand for the products those businesses produce.
The availability of jobs is just one metric of consumer health that we monitor at ITR Economics; personal income, personal consumption expenditures, and debt delinquencies are also giving positive signals. Take a look at ITR CEO and Chief Economist Brian Beaulieu’s latest executive summary in the ITR Trends Report™ for more on those positives as well as some potential downside risks involving interest rates and the Federal Reserve Board.
