“The future is unknowable because the future is dependent on many possibilities.” (Source)
Company A believes Sales next year will climb by 15%, and they allocate resources accordingly. Management makes sure there is sufficient inventory and human talent to meet that need. Purchasing and HR are on the move, and soon Company A has the depth of bench to meet the anticipated demand and enough product to satisfy customers. Then the supposed unknowable happens, and Sales in the following year increase by a more modest 5%. There is obviously a misallocation of resources and an increase in the expense structure that hampers profits for the year, and an impingement on cash that can hurt future plans.
The same happens on the way up. Management estimates 5% growth and the economy delivers 15%. The lack of proper capital deployment leads to lost sales, lost clients, and most likely a tarnished reputation.
The above statement about an unknowable future is true in many ways, particularly to the extent that there are no guarantees. However, when looking at the economic environment, you can know with a high degree of confidence what next year will bring. The thought process works for your company and across a very broad spectrum of the economy.
Let’s look at a collection of new orders trends to demonstrate:
- Construction Materials and Supplies New Orders
- Electrical Equipment, Appliances, and Components New Orders
- Steel New Orders
- Machinery New Orders
All of the above have 12/12 rates-of-change that are in Phase B , Accelerating Growth. Additionally, Construction Materials, Electrical Equipment, and Machinery New Orders have all set new record highs for dollars spent during the past 12 months. There is a lot of money pouring in, and the new orders trends are hot! It would be very easy to see next year as Company A did above – all systems are GO and let’s be sure we are ready for it!
All of the above markets also have something else in common; each has seen recent decline in the 3/12 rate-of-change. The 3/12 rates-of-changes have not yet downward-passed the 12/12 rates-of-change, which is something we are watching for closely, as this would be an ITR Checking Point™. (See our website for more information on the Checking Points and the use of rates-of-change.) The internal signals from the 3/12s are therefore weak and suggesting less trust in the upward trajectory of the 12/12 rates-of-change.
That leaves us with another thing all these industry segments have in common. They each have numerous leading indicators that are signaling a Phase C, Slowing Growth, trend for each industry in 2022. They will not all slip into Phase C at the same time; life is never that simple. But knowing the timing relationships to the appropriate tell-all leading indicators provides the answer to the "when" for the industries. Knowing how you relate to the industry rates-of-change and to the leading indicators also answers the "when" for you: when you will reach a rate of growth zenith and what you can expect for a growth rate in 2022. There are always things that can derail a solid forecast (think COVID, international oil disputes, etc.), but those are rare. The reality is that you can know with a high degree of certainty what to expect and how to plan for it, because your business is in large part driven by the new orders trends in the industries in which you participate. Yes, you can know the future, at least to a high degree of confidence. You can find out about new orders trends and more at our website.