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Slowdown in 2022

September 10, 2021

ITR Economics is forecasting an economic slowdown for 2022 - what trends are contributing to this forecast, and how can your business prepare? Catch our newest TrendsTalk episode with ITR CEO and Chief Economist Brian Beaulieu to learn more.

 

 

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Transcript by Rev


Hello. I'm Brian Beaulieu, CEO and chief economist of ITR economics. Thank you for joining us for this edition of TrendsTalk. Really appreciate you stopping by. We're going to hit upon a few items today, all tied to the economy slowing down in 2022. At least that's our forecast. And increasingly, that looks to be what is going to be going on. We've got new leading indicators that have recently tipped over. I think most importantly since the last time we spoke was the ITR leading indicator, the one proprietary to our firm, is now in decline. That's significant. We also have the single family housing starts 12/12 also in decline.

So two more have tumbled and our dashboard is really very consistently telling us decline is ahead for the rates of change in 2022. And that means slowing growth for the overall economy. We continue to think it's just slowing growth. There's no reason to anticipate it's going to be anything worse than that. Our retail sales for instance remains quite robust and our retail sales leading indicator, again, proprietary to ITR, remains positive. It's one of the few indicators still remaining positive as a matter of fact.

Savings levels are high so we expect the consumer is going to be doing well. All of which presumes that we're not heading into another lockdown because of either the MU variant or the Delta variant. That remains the wild card in all of this.

So what does this mean? It means that there's a respite coming up in terms of the rate of growth, which is going to give the supply chain issues time to resolve themselves. Just recently we saw where GM announced that numerous plants are going to be closed for lack of chips. Relief is coming. It's on the way. That's a temporary issue, but it's still an issue, and we're all confronting that to one degree or another. This slowing rate of growth is going to be helpful in terms of resetting the table.

Tangentially to that, don't be surprised if the stock market gives you some nervous tidings. Our own optimizer input recently went to defensive. Now that means we're not getting out of the stock market. We are simply getting out of the more high-flying risk cyclicals and going into defensive sectors. You're welcome to ask me, and I'll refer you to Clark Bellin in terms of what that may mean to you, or ask your own financial advisor. But we don't think this is the big correction where we're going to see prices be reconciled with profitability as we've shown before. There's gross imbalance right now.

That imbalance is also indicated by individual investors have more than 70% of their money in stocks and less than 30% in bonds and cash. I certainly agree with the bonds part of that. Personally, I'm not a big fan of the bond safety net when interest rates are about to be going up, about being in 2022. But you may want to think about increasing your cash positions, taking some profits off the table so that you can reallocate and rebalance after some near-term stock market weakness. We don't time to market, so I can't tell you exactly when it's going to be, but we don't think this is the big one. The big one's probably tied to that 2026, plus or minus a quarter or two, recession that we have in our longer-term outlook. That's more likely going to be when there's a financial rebalancing of major proportions that you need to contend with.

For now, this is a slow down. Think about taking advantage of these very low interest rates to make acquisitions. Maybe buy equipment. Modernize. Automate. But at the same time, while you're locking in these rates, please do your best to find the path to being essentially debt-free, at least for the business, by 2029 still. Even in 2025, you really want to have a strong balance sheet going through that recession. Cash is always king in a recession. But it's going to become even more paramount come 2029. Lock a note down as long as you know how you're going to unwind over the next two cycles, is what we have left ahead of us. That's it for today. I'm Brian Beaulieu. Thank you for joining me for another TrendsTalk

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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.