Macroeconomic Outlook for 2022
December 10, 2021
The overall economy will see growth in 2022, though slower than the growth seen in 2021 - how should your business be preparing to tackle the new year? Catch our newest TrendsTalk episode with ITR Director of Economics Grace Schatz to learn more.
The below transcript is a literal translation of the podcast audio that has been machine generated by Rev.
Hi, my name is Grace Schatz. I'm Director of Economics at ITR Economics. Today I want to go over our macroeconomic outlook and also give you some insight into how you can leverage that information to give you the best possible outcomes in 2022 in your business. So there are many insights that I could share, but I've narrowed it down to just three that I want you to take away from this trends talk, and work on applying in your business as soon as possible so that you can see the results that in 2022.
Our outlook is that there's likely to be growth in the overall economy next year. The pace of that growth is likely to be slower than what we saw in 2021, but still growth nonetheless. Depending on the industry you're in and what's really driving the activity in your business, you might be in a position where you've already surpassed those pre-pandemic levels and your business is growing consistently from there. Or you might be in a position where your industry, your business was more significantly impacted by the negatives, the government shutdowns, for example related to the pandemic than it was by the positives, the stimulus spending that really drove consumer activity.
If your business is in that bucket, you're not alone. Industrial production overall is below the pre-pandemic level. And while it's still climbing, it's going to take some time to get back up to the level of activity we saw before because of supply chain issues, because of labor issues, for example. Regardless of those issues that are constraining activity, we're still expecting growth to occur next year. And to be able to plan for that is going to be very important.
I mean it's important because there are a few different dynamic aspects of economic data that are telling us that you need to be a little more cautious about how you look at data than you have been before. The first takeaway action item to put on your list is that you really need to be looking at your data from a volume-based metric and also a dollar-based metric. It's normal for our clients to really focus on say sales data or orders data that's dollar or currency denominated.
But because of the inflation rates that we're seeing in the overall economy, using that data in order to inform your decisions about next year, may not tell you the whole story. You're also going to want to do an analysis of the volume as well to see where volume for your business is on its business cycle trajectory. That's going to help you make purchasing decisions for next year. What kind of volume activity is likely to happen?
Another thing, second action item that I want you to be aware of is looking at orders versus sales. So for many businesses, orders have been through the roof this year. And what that means is much higher levels of backlog for many businesses than they're used to seeing. That could translate to order cancellations even if it's not the norm for your business, even if it's not the norm for your industry. This is a very unique time period where businesses in many cases put more orders in than what they expected to actually use or receive.
What that means for your business is that you have to be more cautious than normal. If an order has always translated to a sale in the history of your business, please don't just take that as a given. Think about it from a perspective of the economic cycle that we're in and understand that the likelihood of some order cancellations is very high depending on how constrained your industry has been, and what kind of lead times have developed within in your industry.
The third takeaway I want you to move away from this TrendsTalk with is really analyzing the product mix that's being demanded. If you're thinking about purchasing decisions for 2022, just told you that we're likely to see a decelerating growth next year or a slowing growth pattern. We call that Phase C here at ITR. That means C stands for caution. You have to be careful during this Phase of the business cycle because there's a chance that your business could start to decline on a year-over-year basis. And that's not just true of you. It's also true of your customers.
So the kind of products that are demanded during a Phase B segment of the business cycle are really not driven by price or at least that has been the case for this Phase B. Price has not been the primary consideration. Things like lead times, for example, have taken much higher importance than normal. As those lead times start to shrink and as businesses start to feel those downward pressures on their growth rates, you may see that the products demanded within your business are different than the products that were demanded in 2021.
They may be lower dollar value. They may be more entry-level products for those businesses that are looking to shave costs. If you plan for that ahead, you might be able to get ahead of that shift. But if you're just thinking about what was demanded in 2021 likely repeating in 2022, you may be stuck with a different type of product mix that is actually demanded by your customers. So as we move into that new year, I'm wishing all the best from myself and our team here at ITR Economics.