July 27, 2026

The below transcript is a translation of the podcast audio that has been machine generated by Notta.

Hi, everyone. This is Taylor St. Germain with ITR Economics. Thanks so much for joining me on this episode of TrendsTalk. We at ITR are your apolitical and unbiased source of economic intelligence. And today I wanted to talk about the business cycle at large and where we are for a number of industries and where we see ourselves going as we move into 2027.

Now, this will be a little bit different from one of our previous conversations around the K-shaped economy, but it will reference how many markets are in different positions of the economic cycle. And our team puts together this great graphic as it relates to this, which we call it our ITR Trends 10. It’s in the core section of our Trends Report, for any of you Trends Report subscribers, but it’s a really cool graphic because it shows our mapping of the business cycle with the four phases of the business cycle we identify and where various industries are in reference to one another. And so I want to remind those of you who are ITR listeners or share with those of you that aren’t. Again, we identify four phases of the business cycle. Phase A, B, C, and D. Phase A is recovery. That’s when growth rates are negative, but getting less negative. B is accelerating growth. That’s when it’s actually exactly as it sounds. We’re growing at a rapid pace. And that growth is expected to continue to accelerate into the future. Then once we cross through an inflection point, we’re in slowing growth. That’s when our growth rates are still positive, but the pace of growth is slowing down. And then finally, the last phase of the cycle is a recession. And so I wanted to talk a little bit about where some of these markets are today, because as we consult with our clients, there is some very different feelings about how this economy is today in terms of strength, in terms of weakness, in terms of concerns, and and even some wins out there.

So let me give you some perspective. We always talk about the housing market as leading the way. The reason we say that is the housing market has about a 12 month lead time to the GDP economy, to the production economy. As we sit here today, the housing market is in a recession. We have seen multiple quarters in a row of contraction in single-unit housing activity. So I should be clear, the recession I’m referring to in housing is in the single-family space. And that is a leading indicator for the economy. I want you to hang on to that point for just a minute, because it highlights why we have some concerns about 2027 for the rest of the economy. Now, so housing leads the way, housing is in a recession. When we look at the production economy in terms of industrial production, in terms of Capex spending, in terms of wholesale trade, a number of the global markets from a foreign perspective, those data sets are all in accelerating growth. But we’re moving towards that inflection point. And that’s very important. I’m not saying as we move into the second half of the year or into early ’27 that we’re in for a recession, but I am saying we are going to see that broader economy from, again, production, Capex, GDP standpoint, move from accelerating growth to slowing growth. And that’s something that’s really important for businesses as you’re planning for 2027. One of the biggest mistakes you can make is assuming the growth that you’re seeing here in 2026 is simply going to continue into 2027. You’ll likely be over budgeting, you’ll likely be making poor business decisions as a result of that. So even though we’re in accelerating growth for a number of these metrics today that have us feeling pretty good about ourselves, know that growth is going to slow as we move into next year.

So again, think about this economy in terms of a train, single-family housing is leading the way, that’s in a recession today. Falling behind single-family housing, it’s about a 12 month lag time, is Capex, is production, those things are in accelerating growth. And then all the way at the end, the caboose of the economy is commercial construction, which is also in a recession today. So unfortunately for my friends in both sides of the construction markets, whether residential or commercial, we’re feeling a bit of pain today, but commercial actually lags 12 months behind Capex and behind production. So again, think about it this way. Housing leads the way, 12 months later, whatever happened in housing often repeats itself in new orders and production, and then 12 months after that, you have commercial construction. This is so important for us to understand, and it’s why ITR specializes in using leading indicators and understanding these lead/lag times to your business. Because the economy is not all created equal. Things are in very different points of the cycle. Things have different lead or lag times and that’s again, so important for planning.

Now let’s talk about ’27 for a second. We do have GDP slowing, we have industrial production slowing down to essentially a flat year, we have CapEx flattening out in 2027. Some of the drivers of that are things we’re seeing already today. We have higher inflation, we’ve lifted our inflation forecast. We expect higher inflation through the second half of the year. As a result of that, the Fed is likely going to be lifting rates as we move later into this year. At least the investors in the futures market are pricing in about a 70% chance that we’ll see an interest rate hike by the fourth quarter. Those trends alone are going to contribute to some slowing in ’27, because as the Fed lifts rates and as we deal with higher inflation, businesses have less of a willingness to invest. And that’s likely going to contribute to some of the slowing that we’re going to see in ’27 for many businesses we work with for the broader economy. And again, the housing market indicator, though we don’t expect the economy to go into recession, the fact that the housing market’s declining right now is another indicator for 2027 that says the economy is going to go through some challenges. Folks, I want to remind you all again, we don’t have 2027 falling off the face of the earth in terms of the economy. Really, what we’re telling our clients is if you want to grow in 2027, you’re going to have to look internally more than you look externally. The external environment is not going to afford much growth. Now, caveat data centers, AI, some of those spaces, again, will afford a little bit more growth than the broader economy that I’m referencing here. But the majority of these manufacturing markets, of the industrial markets, will be flat in ’27. So you are going to have to find ways to gain market share to use your competitive advantages to develop new products. If you want to see growth in ’27, when this environment’s likely going to be a little bit more flat.

So I hope our conversation today gives you a little perspective of how we map out the phases of the business cycle, how we understand not every market is in the same phase of the business cycle, and how we use some of these leading indicators to be able to project forward. Again, I always want all of our clients, all of our listeners, thinking a business cycle ahead. For me, ’26 is done at this point. We’re in the second half of ’26. There’s going to be very few things you’re going to do to really change what’s going on in the second half of ’26. Start looking ahead to ’27 so you can outperform your market and outperform your peers. I’ll have a lot more information regarding 2027 as we continue to progress, but for now, I hope you found this helpful. Thanks for joining me on this episode of Trends Talk. Like and subscribe to TrendsTalk wherever you listen to your podcasts. Look forward to seeing you on the next one. Thanks so much. Take care for now.