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Putting the Slowdown in Context

February 11, 2022

ITR Economics is not forecasting a recession for 2022, but we are expecting an economic slowdown - what does that mean for your business? Catch our newest TrendsTalk episode with ITR Economics Senior Forecaster Connor Lokar to learn more.

 

 

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


Hi, everyone. Connor Lokar here, checking in with ITR Economics for another TrendsTalk. And today we're putting this 2022 slowdown in context. It's finally here, or at least technically, we're nearing the top of the business cycle. And as we start to talk about that more, it's making people nervous. So, we need to just level set some expectations here.

So, if we rewind the clock a year and a half or so, ITR's really been calling for a decelerating economy in 2022, since the middle of 2020. At that point, the economy was just starting to emerge from the initial COVID-19 lockdowns, moving into recovery and really for the last year and a half, our focus has been, in our presentations on the road, our consulting calls, has really been on tackling that challenge of the growth ahead.

But now that we are finally here in early 2022 and transitioning through this business cycle peak, we're really narrowing our focus on this slowdown and, understandably, it's making folks nervous and, in some cases, leading to a little bit of miscommunication. I don't know what it is about slowing growth. I mean, it's a two-word phrase and both words are equally important, slowing and growth, but, for whatever reason, often when clients hear slowing growth, and I'm not sure if it's just they tend to be pessimists at heart. They tend to often ignore that second word being growth and really focus on that slowing part of the equation, sometimes conflating that into expectations of decline.

And so we need to be clear. ITR, we're forecasting a slowdown, a deceleration in 2022, not a recession. That second word is just as important, and that word is growth. Growth at a slowing pace is still growth, simply a decrease in the rate of increase. So most businesses, and I'd say an overwhelming majority of ITR's consulting clients based, in my role as senior forecaster, I get to see a lot of that data, a lot of that client data on a quarterly basis. And we forecast hundreds of these data sets for companies and the overwhelming majority of those folks are projected to grow in 2022. Top line increases for the year. And that means higher demands on their labor force, their processes, their productive and shipping capacities, on their supplier partners and their supply chains in general.

But, at the end of the day, for the most part, what we are just not anticipating is the same degree of increase year on year in 2022 that we experienced in 2021. So, let's just use fake numbers for a moment. So, if business X, they produced 100 units in the COVID-depressed recession year of 2020, and then they had a huge increase and went up to 120 in 2021 and registered that very nice, healthy 20% year on year increase.

So, even if they're able to stack on another 10 unit increase here in 2022, finish the year at 130, that's actually only going to register at roughly an 8% growth rate, still a positive growth rate. And nonetheless, throughout the year, they're going to be producing more than in 2021, shipping more, procuring more raw materials and inputs to accommodate that increase, likely needing more labor as well. So they're going to be growing. Businesses typically only are going to get in trouble in slowing growth conditions if they don't see it coming. And they are planning, they are purchasing, they're increasing their cost structure based on an accelerating growth trajectory expectation.

A business that plans on increasing from 120 to 130 units in 2022, and does exactly that, they're going to have a wonderful year. A business that plans on and banks on increasing from 100 to 120 to 150 units, but then ends the year at 130, they're likely to have a problem. So, it's all about framing. It's all about context. Slowing growth is still growth. It is not something to fear. It's just something that has to be planned for and planned for differently, particularly coming out of a broadly accelerating year like 2021. That's the mindset that we should have when looking at 2022.

So, thanks for stopping by. We'll see you on the next one.

About

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.