The U.S. economy has been rising for 27 months, a pattern that’s at least 8 months longer than typical, according to Alex Chausovsky, senior consulting advisor with ITR Economics. The Trump administration’s tax reforms have contributed to the longer cycle, but a change is expected in early 2019.
Alex Chausovsky is senior economic advisor
with ITR Economics.
“The transition to the backside of the cycle will take place in the coming months, yielding some pockets of actual negativity by the time we get into the late 2019 and early 2020 timeframe.
“If anything is going to determine how significant the negativity will be at that time, it will be the tariff environment over the first 6-9 months of the year,” Chausovsky says. ITR also expects the Federal Reserve to raise interest rates in 2019.
Preparing Your Dealership
Chausovsky says that small businesses should watch costs and look for available opportunities, “pivoting” what you sell and which customers you focus on to pursue the “lowest hanging fruit.”
“Companies absolutely need to be more aware of their own profitability metrics because we've got rising prices all around us. We have wage-driven inflation. We have material price-driven inflation. Certainly, logistics are up significantly this year in terms of shipping. We have all these natural inflationary pressures before we even consider the impact of inflation related to tariffs. The old adage of raising your prices once a year is out the window. You have to understand where you are from a profitability perspective at all times,” he says.
Chausovsky also advises that you can outperform through the downside by re-examining your markets and the products you carry while looking for new business arrangements. “Perhaps look to lock in longer term contracts with some of your customers to create some stability for yourself. Essentially, leverage other people's current optimism to your advantage and lock in some of that business for the next 2 years to carry you through the downturn.
“Then prepare yourself for the next upswing. We expect that the pullback in the economy will be essentially a lull in activity, not a severe recession. You've got to keep some ‘dry powder’ ready for those low points in late 2019 and early 2020 when you can put some cash to work and prepare yourself for that next rising trend that's going to emerge in the late 2020, early 2021 timeframe,” he says.
ITR has been forecasting a depression coming and Chausovsky says that forecast still holds. “We still believe that the 2030s will be an extremely difficult time for the U.S. economy, not just like 2008/2009 was, but more like 1929, when we have unemployment north of 10% and significant declines in the GDP (gross domestic product).
Chausovsky says dealers need to understand their business data and leverage the messages in their own rates-of-change to weather any cycle. “Using your own business data will enable you to make much more informed decisions about your position on the business cycle, and to make better timed decisions to get ahead of the curve,” he says.