Economic prospects have taken a positive turn, and we have adjusted many of our forecasts upward. On net, the economic evidence indicates that a plateau in 2024 is more likely than the previously forecasted mild recession for B2B spending and industrial activity, though this plateau may have a slight downward bias. Consumer- and services-heavy US Real GDP and US Total Retail Sales will slow in growth in 2024. Leading indicators signal a stronger year for the US macroeconomy come 2025.
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Stimulating Factors and How to Harness These Trends
- Nearshoring and onshoring: While semiconductor and chip manufacturing dominate the news on onshoring efforts, manufacturers across the economy are moving supply chains closer to home at an accelerated pace post-COVID. Producing closer to home can improve agility, protection of intellectual property, and environmental compliance. Look for opportunities to gain market share from this trend of de-globalization; however, be aware that higher costs are a likely side effect. Margin-improvement is a must to sustain profitability in the coming years.
- Government spending: Federal government spending has increased considerably from 2020 onward. Knockon effects to the private sector have shifted over the course of this business cycle in a milder direction. While the longer-term impacts remain to be seen, the near-term impacts are higher manufacturing and nonresidential construction activity than we would have otherwise seen. Consider targeting markets with exposure to government investments, either directly or indirectly.
- Corporate cash balances are elevated: Many businesses were able to pass along costs during the inflationary burst following the pandemic and were therefore able to build up cash holdings. This cash buffer makes the 2022-23 jump in interest rates less of an issue for some. If you are flush with cash, put it to use with a focus on reducing your dependency on labor, embracing new technology to improve efficiency, and prepping for an environment of higher inflation in the years ahead. Consider new products or markets to expand into over the longer term to buck some of the headwinds we see coming in the 2030s.
- Resilient consumers: The tight labor market has kept upside pressure on wages. As a result, US Real Personal Incomes are rising, allowing consumers to continue spending at a pace exceeding inflation. Like in the business world, outcomes are divergent. Look for ways to cater to consumers with more discretionary spending. Lower-income consumers are feeling the pinch of inflation and high interest rates more acutely.
Planning for Challenges Ahead
With large amounts of government spending, inflation is likely to be “sticky.” Persistent inflation poses financial planning challenges and could increase the difficulty of passing along price increases. A further consequence of inflation is its impact on Federal Reserve policy; a rate cut is still on the table for later this year, but slow progress on inflation increases the risk of higher-for-longer rates. A delayed lowering of rates could prolong economic pain for industries most sensitive to rates. Additionally, while the tight labor market will likely be a boon for consumers in the coming years, it will constrain opportunities for growth if your business is unable to staff up to meet demand. To that end, efficiency gains in your business—whether through implementation of AI, automation, or process improvements—will allow you to remain competitive. These challenges are not insurmountable; advanced planning can you help manage risks and get a step ahead of your competition. Remember to zoom out from the day-to-day to reflect on your competitive advantages and your longer-term strategy.
