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Three Reasons to Lead With Optimism on the Back Side of the Business Cycle

By ITR Economics on June 9, 2022

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ITR Economics

ITR Economics is the oldest, privately-held, continuously operating, economic research and consulting firm in the US.

"Lead with optimism" is one of our Management Objectives™ that we reinforce when times are uncertain. The casual reader might picture a business owner or executive stretching her mouth into an awkward Joker smile seconds before ducking into a stand-up to brief her direct reports.

That's not what we mean.

Leading with optimism is about not getting caught up in pessimistic headlines but instead reminding your team to focus on the data that will help you all make better-informed decisions. Our clients and readers can lead with optimism because they have good reason to. "Times of uncertainty" are less so for those who follow the leading indicators and understand the cyclical nature of markets and the economy.

Here are three reasons to be an optimistic leader today:

1. The Macroeconomy Is Sound

Media noise notwithstanding, the macroeconomy is generally growing. Industrial sector growth only started slowing in April, and growth is (and per our forecast will be, into mid-decade) the prevailing trend. The US Industrial Production 12-month moving average in April approximately matched the February 2020 level, meaning that, in terms of volume, we are about where we were just before the most restrictive shutdowns of the COVID-19 pandemic were instated.

If we're going to discuss the macroeconomy, then we cannot neglect to address GDP, which made headlines in recent weeks by posting some mild decline. It is true that US Real GDP contracted in the first quarter relative to the fourth quarter of 2021, declining 0.4%. The number in the headlines was larger, as the media tends to reference annualized figures, which apply a single quarter's performance across a hypothetical year, artificially amplifying any contraction or growth.

GDP's first-quarter contraction was attributable to lower inventories, imports coming in higher than exports, and lower government spending. Consumer spending was strong. We expect some vacillation in the GDP figure before the business cycle turns upward again next year, but not sustained or severe decline.

2. The Consumer Is Strong

We monitor retail trends and other consumer metrics on a daily basis, and these measures continue to indicate strength. US Total Retail Sales are, on an annual basis, at a record high, and continue to rise. Consumers may be vocalizing concern over high energy prices and elevated inflation, but, with wages also rising, they continue to spend.

Meanwhile, debt burdens – as measured by debt service payments as a percentage of disposable personal income – are below where they were as the pandemic took hold and in the years leading up to it. Disposable personal incomes are up over that same time period.

3. Shoots of Green

Leading indicators are a key component of our analysis at ITR Economics. When we're on the back side of the business cycle, there is a forecasted low point (and subsequent rise) ahead, but for a relatively brief, initial period, there is no leading indicator confirmation of that low point. The leading indicators are all still in downward trends, and only our forecast and prior experience tells us that the positive turning point is coming. It can be a disconcerting time, especially for those who haven't experienced it before. Waiting for those indicators is like watching an inexperienced child explore his limits on the diving board. He has jumped off and successfully hit the water, temporarily disappearing beneath the surface. A second or two have elapsed. There's no reason to worry, but you watch the sun-dappled surface anxiously for the dark and expanding shape of an upward-traveling human.


That's where we are, and we're starting to see those hints of submerged movement. Two of the 12 leading indicators in our dashboard are exhibiting positive signals that would indicate a low and subsequent macroeconomic rise ahead. That's not a solid signal – we need five sustainable upturns for that – but it's a start.


As we have noted before, optimism is not the same as overconfidence. Inflation will factor more heavily into business conditions moving forward. If you're borrowing to invest in your business, be sure that future demand will be sufficient for a solid ROI. Consider efficiency improvements and labor-saving automations.

Watch your margins relentlessly, and make sure you have a handle on your specific markets, as some will decline. In addition to all of this is the ongoing conflict in Ukraine, which introduces its own considerable economic risks.

There are a lot of moving pieces, and some will require foresight to navigate. We can help.

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