Through the Valley

There are some absolutes in life; one is that downturns in the economy are inevitable and another is that economic recoveries and growth follow.

The global economy is moving lower into an economic valley. The World Industrial Production Index 12-month growth rate (12/12) has slowed to 1.3%, which is the slowest growth in over nine years. The quarterly production index (3MMA) is a thin 0.5% above the year-ago level and the 3MMA declined from June to September for the first time since the Great Recession. Global demand pressures for industrial goods from the US and other countries is weakening, and the related supply chain is feeling the strain.

The table below shows that the economic stress is occurring around the world with Germany posting the most significant year-over-year decline of included countries.

The US Industrial Production Index is 1.1% above the year-ago level on a 12MMA basis, but the 3MMA slipped to 0.7% below this time last year. Still, the US is in a better position than most of the world with a 12MMA that has just recently begun to edge lower as compared to declines in Germany, Japan, and the UK that began over a year ago.

It is worth noting that China’s 12MMA is rising and the rates-of-change look relatively healthy, but they are not. The 12/12 and 3/12 values are the lowest reported by China in roughly 23 years. The June-to-September increase in the 3MMA was the mildest in 25 years and the September-to-October decline was the steepest in 25 years. That is all after a host of stimulus measures and what might be deemed as interesting reporting practices. Do not be misled, China is also feeling the pain.

The important thing to do now is to remember that these economies, and others, will be experiencing recovery or growth in the latter half of 2020. The chart below provides compelling evidence that the world economy is set to accelerate in the second half of the year, and the nations listed above will participate in the improved rate of growth.

We encourage you to take maximum advantage of the developing improvement with these Management Objectives™:

1. Assess and project cash needs based on increased levels of activity
2. Project and increase inventory as applicable
3. Relax credit requirements as the economy improves
4. Drive fulfillment time efficiencies of both products and services to avoid customer frustration and potential loss of market share
5. Sell products/services that sell best when the economy accelerates
6. Craft marketing messages commensurate with economic growth
7. Budget for increased costs in labor and materials

Developing your own rates-of-change and comparing them to leading indicators and industry trends is the most important step you can take to maximum your upside potential in the coming year. Go to our website at www.itreconomics.com to learn more through our free video.

Alan Beaulieu
President