Budget Season Check-in
September 16, 2022
Is your company ready for 2023 and beyond? Check in with ITR Economist and Speaker Lauren Saidel-Baker as she helps you prepare your business for budget season in the latest episode of TrendsTalk.
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The below transcript is a literal translation of the podcast audio that has been machine generated by Rev.
Hi, I'm Lauren Saidel-Baker. And welcome to this episode of ITR Economics TrendsTalk, from the road. I'm coming to you from the airport today. Our ITR speakers have been out there hitting the road hard, partially because it's budget season. So companies like yours are saying, "What should we be doing? Wanting that economic forecast for the year and the couple of years to come." So let's have a budget season check in today, shall we? What can we expect going forward for our budgeting needs?
Well, if you're in budgeting season, I would say, first of all, you've taken the first step. Planning ahead is a critical component to running the business, especially in this changing economic environment. So you'll want to check in first with your own leading indicators. See what your markets are doing, not just what the overall GDP or industrial economy is saying in the aggregate. But what do your specific indicators, the ones that lead your business the most closely, portend for the years to come? Now, chances are things are looking a little bit different for 2023 than they did in 2022. And especially in 2021, when we got this first wave, this first resurgence of demand across most economic sectors.
So things have started to slow down across GDP, across the industrial economy. Those same robust growth rates just won't be with us next year. So plan for that. Look at your demand, look at your backlog or your unfilled orders, whatever metrics you're using, and take a realistic approach. First of all, don't just use straight line budgeting. That will get you in trouble in 2023. But overall, a lot of the trends that have started to come into force, especially with regards to pricing, those will be with us in the few years to come. Now, inflation has been running incredibly hot. Just today we got some new inflation numbers and while it's important to follow the month to month and quarter to quarter numbers, I want everyone to step back, take a bigger picture.
If you're looking at say commodity prices, those day to day and week to week prices really aren't what you should be basing your budget on. Take that broader view, that more holistic view about general price trends. What does the supply demand picture mean? And use the ITR economics trends report to get a more specific tailored approach to a few of those commodity prices. In general, though, most of these inflationary trends won't be going away anytime soon, but we can in fact expect some disinflation. Now I'll say that again, disinflation is not the same as deflation. So if you're banking on prices going back down, well, that might be premature across most sectors. There will be some modest price relief, but really what we're seeing is that prices just won't be rising at quite the same pace. So do price in further rise, higher prices, or at least stabilizing prices across most of the commodity complex.
And the other major input cost is labor. Now, labor has been incredibly challenging with the so-called "Great Resignation" with just how tight our labor market is today. Labor costs are up, that won't change. Labor costs will continue to rise in the years to come. We just don't have that loosening of the labor market that we would really need to see significant relief on labor costs. So budget for higher wages, higher earnings for your workers. You'll need to be evaluating cost of living in your area and the inflation that these folks are feeling on the other side of their budgeting process.
So do budget for those higher costs, especially if you're trying to hire right now. But just as importantly, if you're just trying to retain those existing workers that you do have. Retention is going to be a cost saving measure in this tight labor market. Retain your existing workforce, especially those A-team players. That's going to be a critical component going forward. I think they're calling my flight so I'm off. Thank you so much for joining me for this episode of ITR TrendsTalk. I'm Lauren Saidel-Baker. Let's talk again soon.