Preparing for Slowing Growth

Planning season is approaching quickly. For many of you, it is likely already be here. As we work on our budgets and strategies for 2022, it is important that we recognize that a different phase of the business cycle will characterize the overall economy for the majority of the year. The decisions and actions that organizations take will likely be a lot different than they were this year – and they should!

Where we are now

Please note that throughout this post I will often refer to the US Industrial Production Index. This data series is our benchmark for the US industrial economy and captures manufacturing, utilities, and mining (oil and gas included) at a high level. US Industrial Production recently transitioned to Phase B, Accelerating Growth. We at ITR often refer to this phase as the “best” phase of the business cycle, because during it, we – as an economy or organization – are experiencing year-over-year growth at an accelerating pace. If your organization correlates with the US Industrial Production Index, you have most likely found that your sales or revenue figures have improved drastically, especially through the last six months. It’s likely, based on our leading indicators, that Phase B, Accelerating Growth, will characterize US Industrial Production through the second half of this year and the first quarter of 2022.

I understand that I just stated that accelerating growth will characterize the next three quarters. You may be asking, “Why are we focusing on the next phase of the business cycle when there are still three quarters to go with this phase?”

There are several reasons for this:

1. Preplanning is key. For example, if you preplanned for the current period of accelerating growth, then you likely have measures in place that are mitigating today's growth-related problems and pressures.

2. We are projecting that a cyclical peak in the US Industrial Production 12/12 will occur in early 2022, and therefore your plans for 2022 need to reflect Phase C, Slowing Growth.

3. Strategic leadership is at its best when you are thinking at least one business cycle ahead

What’s important to know for Phase C, Slowing Growth?

• The first thing to note is that I am not suggesting the US industrial economy will decline or contract. Our forecast for 2022 calls for growth; it’s just growth at a slower pace than what we will likely have experienced in 2021.
• Avoid linear budgeting. For those that correlate with the US economy, it would be a big mistake to assume 2021's pace of growth will continue in 2022. Do not simply straight-line your budget; this could result in a significant misalignment of resources.
• Look for counter-cyclical markets. While US Industrial Production and your business might be slowing, there are always lagging markets or markets that are counter-cyclical to your business that can help you mitigate the slowdown. Our DataCast™ tool can help you with this analysis.

For more information on the coming phases of the business cycle and insights regarding profitable actions to take, please refer to our Trends Report™. Follow us on Twitter and LinkedIn, and subscribe to our podcast, TrendsTalk™, for updated information on a weekly basis.

Taylor St. Germain

Analyst and Speaker