November 2, 2026

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

Daniel Doderer We’re seeing higher wages, we’re seeing higher input costs, we’re seeing higher electricity, related to a lot of the things that we’re seeing from this electrification. A lot of the benefits on the industrial production side, it’s leading to these higher costs in a real universal way.

Taylor St. Germain Hi everyone. This is Taylor St. Germain with ITR Economics. Thanks for joining me on this episode of TrendsTalk. We at ITR are your apolitical and unbiased source of economic intelligence. And today we have a guest, my colleague Daniel, with me. He’s an economist, public speaker, just like myself here at ITR. And I’m having Daniel on today because we wanted to discuss our 2027 outlook, especially for industrial production, because we’re in planning season. Daniel, myself, the other ITR public speakers, we are traveling the country giving updates to our trade association partners, the businesses we work with as we start to plan for 2027. Now, I’ve talked on the podcast in the past that 2027 is going to present some different challenges relative to 2026. There are going to be some markets that grow, some markets that were a little bit more worried about, but I wanted to have Daniel come on to, first of all, outline one of our core forecasts, which is industrial production, and talk a little bit about some of those markets that will look better than others next year. So, Daniel, appreciate you being here and want to kick things over to you.

Daniel Doderer Thanks, Taylor. It’s great to be with you. And I’m glad that we’re talking about this right now as well. Right. It’s definitely front of mind. A lot of people are really wanting to know exactly what’s going to be happening on the production side of things. So, the perspective from ITR, as our forecast has it, is we expect 2027 to be a time of phase C, slowing growth. So, we anticipate that we’ll remain positive throughout the year. We’ll hover right around that zero line as we move into the second half of 2027. But I think what’s more important than that is the fact that it’s kind of going to be a year of haves and have nots. We see some real highflyers and some real areas of opportunity in markets that we think that you should be thinking about as we turn the chapter here. Some of those areas are going to be familiar names to a lot of folks, right? The computer space, electronics space is going to continue to outperform. Pharmaceuticals is another area of opportunity. And we are seeing the underlying momentum on machinery new orders and metalworking as other areas that are going to continue to perform pretty well as we move into the year. Again, the other areas that you want to start thinking about though that might be a little bit more hampered, it’s going to be more legacy manufacturing. We might see a dip into the phase D period. But overall, we do anticipate that we will be in a general phase C throughout the market.

Taylor St. Germain Yeah. And I think this is something we’ve talked about on the podcast in the past, everyone, which is when you have a flat year, like we’re forecasting for 2027 in the back half, like Daniel said, it’s not that everything’s flat. It usually means some things are up and some things are down, and the balance of those things gets you to flat. And so, like Daniel said, you know, when we work with our clients individually and we talk about what to do during a slowing economy like Daniel’s laid out here, it’s understanding where you want to allocate a lot of your time and resources. And we want you spending time and resources on some of those markets that are going to drive growth next year, like Daniel highlighted here. We also want you looking internally in 2027 on how you’re going to drive growth. Some of your external markets might slow, might contract. And we need to think of ways that we’re going to drive growth from gaining market share, from using your competitive advantages because in a flat environment, you have to look internally to drive some of that growth. So, your execution in ‘27 is going to be more important than it ever has been before. We often talk about going countercyclical during slowing growth cycles. And that’s the way Daniel, myself and the team here at ITR can help you is, understanding what markets might be actually accelerating in ‘27 relative to, you know, following the broader economic trend. So, we’re in a K-shaped economy, and we’ve referred to this economy in the past. And when we move into a period like 2027, we have to identify those high growth markets. There’s another element to 2027 that I think we should, you know, briefly touch on here. Daniel, I’d love to get your thoughts too, it’s this concept we say profitless prosperity at ITR. Everyone loves the phrase as we’re traveling out on the road. And the idea, of course, behind that is margins can be challenged. Daniel, I don’t know if you want to add more into, you know, what do we mean by profitless prosperity? We’ve talked about it in the past, but why is it important in ‘27?

Daniel Doderer Yeah, specifically in ’27, I think that’s such a good point. You mentioned it, it’s the number one topic when we’re talking to clients, outside of the 2030s, they really are thinking about how the next couple of years of this higher inflationary environment, where cost is really being pushed through on the production side in a universal way, right? Where we’re seeing higher wages, we’re seeing higher input costs, we’re seeing higher electricity, related to a lot of the things that we’re seeing from this electrification and a lot of the benefits on the industrial production side, it’s leading to these higher costs in a real universal way. So, the way that we’re thinking about it and what we’re really trying to put front of mind is not a lackadaisical attitude, but really a laser sharp focus on, okay, where are my costs? How are they evolving? Even though my top line is going to likely continue to grow higher as we look at a lot of these non-deflated data series, what’s actually happening underneath the surface from the volume side of things? So, kind of holding those two in concert, really being aware of them and how the underlying cost is eating into a lot of that top line growth is something that we really have to be front of mind, especially as we turn into 2027.

Taylor St. Germain Yeah. And folks, we don’t expect the rate of inflation to be as significant in ‘27 as it was in ‘26. But when you have low to flat growth and still inflation above zero, that’s a recipe for margin erosion. And so, you know, if Daniel and I were to sum up what we’re sharing with you today, there’s really three things I’d want you to pay attention to. It’s understanding which markets are going to outperform others. It’s using your competitive advantages to drive market share growth next year because you’re going to need it if you want to grow like you expect to. And then the third is being laser focused on those costs and really trying to maintain margins, again, in an inflation environment that you’re not going to see lower prices, you might not see prices increase as quickly, but certainly not seeing lower prices. So those are the three things you should be discussing with your teams internally. Those are the things we think about as economists as we look at capitalizing on this cycle. I’ll leave you with a comment that is, there is no such thing as a bad phase of the economic business cycle. It’s one of our many mantras here at ITR. You can make money at any point in time, but being prepared for a slowing cycle relative to the accelerating growth we’ve seen in industrial production in ‘26, it’s going to be important for next year. So, Daniel, I appreciate you coming on. Thanks for being here. We’ll certainly have you back. And for everyone else, please like and subscribe to TrendsTalk wherever you listen to your podcasts. And we look forward to seeing you on the next one. Thanks so much. Take care for now.