Economic and Financial Resources

Ten Key Insights from the Q2 2023 MHEDA/ITR Report: “Recession in 2024”

1. The bad news: ITR is forecasting worsening economic conditions as this year progresses and recession in 2024.
2. The good news: ITR expects the upcoming recession to be relatively mild.
3. For many companies that trend with the industrial sector, we are expecting a relatively mild downturn, more akin to 2015-16 than the Great Recession.
4. Consumer balance sheets remain solid, with relatively low debt-to-income ratios, muted credit delinquency rates, and rising inflation-adjusted income.
5. The trend of onshoring and nearshoring manufacturing facilities to strengthen supply chains is likely to persist, providing new opportunities for domestic manufacturers.
6. US Material Handling New Orders will be relatively flat this year.
7. US Overall Wage Growth was at 6.4% in March, having declined slightly from a record high of 6.7% in late 2022. Ongoing and expected rise in labor costs will push businesses toward automation, somewhat blunting the impact of macroeconomic decline on New Orders over the coming business cycle.
8. US Food Production in the 12 months through March was 1.5% above the year-ago level.
9. While annual Retail Sales will rise through 2025, the pace of rise will decrease into the end of 2024, in concert with the anticipated macroeconomic recession that year.
10. Leading indicators point to tougher economic conditions in the coming quarters. Monitor your company’s quarterly and annual rolling rates-of change to assess how you are being impacted.

Takeaways for your business:

• Know your customers and your market;
• Promote your business’s competitive advantages;
• Re-examine any planned capital expenditures;
• Make sure you have sufficient cash on hand;
• Do not fall into the rabbit hole. In the long term, we expect the US to be well-positioned as a place for business.

Ten Key Insights from the Q1 2023 Report: “What A Yield Curve Inversion Means for You”

1. According the closely monitored data, there is an 88% probability that a recession is coming.
2. Expected decline throughout 2024.
3. Three main tailwinds – reshoring, backlogs, and a solid consumer balance sheet – will keep the recession relatively mild.
4. It will be especially important to understand the degree to which your business will (or will not) be impacted by a macroeconomic recession. Use the forecasts in this report to help.
5. Take this as an opportunity to upgrade your talent pool in preparation for recovery and rise starting in 2025.
6. In spite of this, the labor market and consumer balance sheets look very strong, offering upside risk.
7. What can you do amid the uncertainty? First and foremost, make a plan and work the plan.
8. Get your employees excited and focused on implementing those plans; but be ready to adjust your plans as things develop.
9. Monitor your cash flow more carefully than before.
10. Lastly, lead with confidence and be opportunistic. Your competitors may go into panic mode. Do not follow them there.

Report Summary Excerpt:

“Rain or shine, we constantly monitor our system of leading indicators for signs of improvement or
deterioration. In the last quarter, we’ve seen broad-based weakness, coupled with a new signal: short-term interest rates, as measured by 3-month Treasury yields, are now higher than long-term interest rates, as measured by 10-year Treasury yields. This so-called “inverted yield curve” signals an 88% probability that recession is coming for US Industrial Production; the Federal Reserve has raised short-term interest rates too far, too fast.

We lowered our annual average US Industrial Production forecast by a slim 0.4% for 2023. Instead of the mild growth (+1.6%) previously forecast, we now expect activity to be virtually flat for 2023 (+0.1%) relative to 2022, with decline developing late in the year. 2024 is impacted more significantly. Prior to the extremely sharp and fast rate hikes by the Fed, we had been expecting growth for 2024. Now we expect decline to extend throughout 2024, with the year coming in 2.3% below the 2023 average, as it typically takes just over a year for yield curve inversions to translate to recession.”