ITR Economics Representative
The House has voted on impeachment, setting up a contentious trial in the Senate for next year. The 2020 presidential election is looming. The stream of news related to the latest developments in the Sino-US trade war is never-ending. The list of political developments goes on and on and on in a pervasive frenzy.
None of this changes the fact that business leaders have decisions to make. But with such political uncertainty, how can you make the critical decisions that will impact not only your company's performance next year, but also the people that depend on you for their livelihoods? How can you know what effect, if any, politics will have on the overall economy and on your markets?
Simple. It’s all about the business cycle, not the political cycle.
The white line on the chart below shows the quarter-over-quarter rate-of-change for US Gross Domestic Product (GDP), on top of the past nine presidential administrations, Republican and Democrat. As you can see, the economy has no party preference. There is no correlation between economic growth or contraction and the particular political party (or policy) at the helm of our political world. In other words: Red or blue, you can still make green.
While political actions can potentially affect the economy, the impact is often both smaller than people think and short-term in nature. Evidence of the economy’s inherent independence from politics is clearly visible in the most recent four-year span. Notice that the last GDP 3/12 rising trend occurred from mid-2016 through mid-2018, during both the Obama and Trump administrations.
As a business leader and decisionmaker, what do you do when faced with this information? Here is some advice that will help you make better-quality decisions, no matter what’s going on in the political world:
- Focus on the business cycle, and not on the political cycle. Develop your own rates-of-change so you will know where you are in your company’s business cycle.
- Use ITR Checking Points™ to identify when you are transitioning from one phase of the cycle to another phase. Changes to your actions and decisions should be based on the business cycle phase, not on political developments.
- Understand your timing relationship to the overall economy, as well as to your markets, so you know if you lead or lag various economic metrics.
- Identify and closely track your own leading indicators. They are windows into the future and can help you see around the corner and make better strategic planning decisions.
- Don’t lose sleep over what’s going on in the political domain. Focus on the things you can control: Invest in your people, continue to develop new products, look for new markets in order to grow your business, and focus on being profitable.
If you concentrate on these things, you can have a successful 2020 no matter what happens in the political domain. If you’d like some help with any of the above, please reach out to us; we’re here for you!