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Prepare for 2020: Focus on the Business Cycle

December 13, 2019

Media speculation regarding the 2020 economic landscape has been fraught with uncertainty -- how can your business rise above the noise? Tune in to this week's TrendsTalk to learn what reliable leading indicators can tell you about the economy.

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ITR Economics' Divider

 

Transcript by Rev

Alex Chausovsky:
Hello everyone, welcome to another edition of TrendsTalk with ITR Economics. My name is Alex Chausovsky. I'm the director of speaking services here at ITR. Today, I wanted to talk to you about what you should be doing to prepare for 2020. There's a great deal of uncertainty out there right now. Next year is obviously going to be an election year, so there's an added complication that business leaders have to contend with there.

We've got an economy that right now seems to be diverging with the industrial sector coming under fairly significant pressure. The latest data from the U.S. Industrial Production Index shows that now on a quarter over quarter basis, we're down year over year, so we're negative territory. That certainly confirms what we have been saying for a long time, which is that the industrial economy is headed for a mild recession as we enter the first half of next year.

This is happening at a time when the consumer seems to be in pretty good standing. We've got a tight job market. The November jobs report was very, very strong, surprisingly so. We've got consumer spending holding up relatively well, and so it's difficult to really be able to make decisions in this kind of environment, and so what I look forward to 2020 and I think about all the conversations that I have with business leaders and decision makers, I wanted to give you some things that you need to be thinking of and implementing regardless of what may be going on in the economy or in politics.

The first piece of advice I want to give you is that you should focus on the business cycle and not on the political cycle. The important part here is that that business cycle that I'm talking about is not just for the overall macro economic environment and the business cycle for your markets, but it's the specific business cycle for your company. You need to be able to develop your own rates of change so that you'll know where you are in your company's business cycle.

Then more importantly, you need to be able to change your decision making and your actions to reflect where you are in the business cycle, because for example, phase B which is accelerating growth, which is where many markets and the overall economy was in 2018 has not been around for a while now. We've been in phase C for quite some time, and that brings with it different decisions, different actions and different things for you to be thinking about.

One of the key things is the second piece of advice that you need to use ITR checking points to identify when you are transitioning from one phase of your own business cycle to another phase, and then that is actually the time to change your actions and the decisions based on those business cycle phases and not based on let's say the political developments for the latest data reading. So when you understand that your business cycle has transitioned from one phase to a different one, that is a clear signal to you that you should be changing your thinking and changing your actions.

The third thing that I want to remind you to do as you head into 2020 is you have to understand what is your timing relationship to not only the overall economy but also to your markets, and so that you can understand whether you lead or lag those particular indicators when you're paying attention to the data that comes out for those series. That gives you an idea of where you'll be heading or perhaps what you say about where those markets are heading, but the key is understanding that lead-lag relationship between you and the economy and the markets overall.

The next piece of advice I want to give you is to find and then closely track over time your own set of leading indicators. It needs to be a body of evidence that consistently predicts what you can expect over time. These leading indicators are essentially windows into the future, and they can help you see around the corner and to make those better quality strategic planning decisions. The first step is knowing what they are, and the second step is developing behavior and patterns and ownership of that process within your organization that didn't continuously pay attention to the developments in those leading indicators over time.

Then the final piece of advice that I'll leave you with is don't lose any sleep over what's going on in the political domain. You've got to focus on the things that you can actually control. Invest in your people. Make sure that you're leveraging the slow down in the economy and in your markets to do cross training initiatives and to make sure that your individuals are growing in all aspects of the responsibility. Continue to look for opportunities to develop new products and look for new markets that you can enter because that's how a business grows despite what may be going on in the overall economy.

Then the final piece of advice is continue to focus on remaining profitable. There is a lot of different forces acting on the pricing environment right now. Input material costs are down typically during back of the business cycle, dynamic momentum like we are in right now, but things like labor costs and shipping costs are likely to be up in 2020. You've got to think about the implications of that to your profitability and to your bottom line, because at the end of the day, you're in business to make a profit, not just to grow your top line performance.

So if you concentrate on these things, you can have a successful 2020 no matter what happens in the overall economy or in the realm of politics. I hope this has been helpful. Thank you so much for spending your time with us at ITR's TrendsTalks. We will talk to you again soon. Thanks. Bye. Bye.

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Since 1948, we have provided business leaders with economic information, insight, analysis, and strategy. ITR Economics is the oldest privately held, continuously operating economic research and consulting firm in the US. With a knowledge base that spans six decades, we have an uncommon understanding of long-term economic trends as well as best practices ahead of changing market conditions. Our reputation is built on accurate, independent, and objective analysis.