July 7, 2023

Hi, everyone. My name’s Taylor St. Germain. I’m an economist with ITR Economics, and welcome to this episode of Trends Talk. Today, I’d like to discuss investing for the future, particularly major capital investments, mergers, acquisitions, given where we are in the economic business cycle. So for those of you that have been following along with ITR, this is not new news to you, but for those of you that haven’t, we’re projecting a continued slowdown in the overall economy and a pullback in CapEx activity as we move deeper into 2023 and with a mild recession outlook for US industrial production and US GDP throughout 2024.

So the question becomes, “Well, when’s a good time to be investing in our business to take advantage of the next growth trend that we have forecast in 2025 and for the majority of the latter half of this decade leading into our 2030s downturn?” And the answer to the question of when should I start considering investing in my business is now. We’re in the slowing growth phase of the business cycle, and we’re headed for some mild contraction next year. So you might be saying, “Well, why is now the time to be considering planning for some of these major capital investments, some mergers, some acquisitions?” Well, that’s because we at ITR are always thinking a business cycle ahead.

And when we look at a 2024 mild recession outlook, that’s really an opportunistic timeframe for all of us to be looking at the long-term trajectory of our business and making investments during this slower period of time so that as growth returns to the economy and as we look out to 2025 and beyond, we’re well positioned to take on that growth.

Now, we’re also dealing with a very tight labor market, and even though we’ll be going through a mild recession, we expect this labor market to remain tight, which is why it’s very important to be considering those major capital expenditures, those major capital purchases, whether that’s some new machinery, upgrading your fleet, automating and innovating your warehouses, making those considerations during that slower period of time in 2024 to offset some of that tight labor market and, again, be positioned for growth in 2025.

Now, many of you might be saying, “Well, Taylor, interest rates are quite high, and you just said we’re seeing a pullback in CapEx activity now,” which is certainly the case. However, when we look out to 24 and 25, the mild recession outlook in 24, the Federal Reserve, although we don’t forecast what the Federal Reserve does, has said that they’re likely to decrease interest rates in 24 and 25. To sum all that up, that’s why 2024 is going to be a great time to consider these investments in your business because if we start planning for those investments now, if you’re considering borrowing or financing to make these investments in your business, as we get deeper into 2024, it’s likely that we do see those interest rates come down. And so borrowing costs will likely be a bit lower in 24 and 25, and based on our inflation outlook, that’s probably the best interest rate you’re likely to get when we look at the rest of this decade.

We expect inflation to be higher in the second half of this decade due to our demographic trends due to the baby boomer retirement from the workforce, which increased costs like social security, healthcare, and rising federal debt here in the US also would drag on our overall spending, making up a larger composition of our overall spending in the US. And those things breed inflation.

So when you’re thinking about investing in the business, now’s the time to start planning. Take advantage of this 2024 slower period of time to make these investments and get them in place to take advantage of the rising trend. And again, if the investments that you’re making are going to be financed or you’re taking out a line of credit, as we get into late 2024 and early 2025, as the Fed’s indicated, those interest rates will likely be lower than where they are today.

Here at ITR, it’s all about planning a business cycle ahead, and that’s why we’re putting this on your radar now. Look at this recession as a real opportunity to take a breath from the crazy last two to three years that we’ve been through and really position yourself well for the future. And again, keep that interest rate perspective in mind. Follow our CEO, Brian Beaulieu, his Fed Watch videos. He’ll keep you updated with what’s going on with the Federal Reserve and their interest rate perspective.

That’s what I have for you here today. Thank you for joining me for this edition of Trends Talk, and I look forward to chatting with you all in the next one.