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What Recession? Don’t Believe the Hype

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What Recession? Don’t Believe the Hype

Instead of manufacturing your own recession or buying into the hype that one is waiting right around the corner, use good business fundamentals to keep your electrical distributorship on the path to success in 2020.

 

In case you were too busy to notice, there are some rumors swirling around right now about a possible economic recession in 2020. Led by a handful of economists, analytics, and pundits who pore over data to come up with potential recessionary scenarios, these predictions could very well create a situation that works a lot like the self-fulfilling prophecy: believe in it enough, and it just may happen.

At least one major American steel manufacturer is optimistic about what the new year will bring, S&P Global Platts reports. “Manufacturing is coming back,” Nucor’s outgoing CEO John Ferriola said. “My biggest concern is that we have what I call a media-induced recession…talking ourselves into bad news.”

That’s not to say Ferriola isn’t realistic about some of the market challenges that U.S. manufacturers grappled with in 2019, and will probably continue to be challenged by in 2020.

“The rest of this year will be pretty flat,” he said during an interview ahead of the World Steel Association general assembly. “Going into next year, it’s really a crapshoot.”

Factoring in the Indicators

Ferriola isn’t the only expert who questions the prospects of a recession in 2020. In Just Because There’s A Manufacturing Downturn Does Not Mean A Recession Is Coming, long-time industry expert Laurie Harbour notes that while September marked the worst month for U.S. manufacturing since the great recession, other indicators factor into the health of the U.S. economy.

“It is true that our current political and trade environment is creating uncertainty in the marketplace. The lack of formal trade agreements is perpetuating constant change in tariff activities,” Harbour writes. “And, nearly every day, the current administration utilizes social media to advocate for and make significant announcements that affect the global economy.”

With 10 full years of economic expansion under their belts—and understanding how economic cycles work—American businesses are riding a wave of strong consumer confidence, a growing housing market, and households that have available disposable income.

“Looking at all the indicators it has become clear that as a whole there is a greater focus on the negatives and not the positives,” Harbour writes. “This heightened awareness may be leading to the country believing that we are going into a significant recession when in reality the economy, and specifically the manufacturing industry, is responding to the evolving market.”

In The economic numbers are continuing to defy the recession hype, CNBC’s Jeff Cox points out that both the labor market and the broader economy are better than they look on the surface, and that they, in fact, have been mostly defying the continual patter of recession expectations.

“By multiple measures, the U.S. is staying ahead of the global slowdown, the trade war with China and the bond market’s implication that the decade-long recovery after the financial crisis is coming to a close,” Cox writes, pointing to the Citi Economic Surprise Index as further proof of the economy’s continued strength. The index looks at actual economic readings against consensus forecasts: it rises when expectations are too low and falls when optimism runs too strong.

“The indicators have been surprising to the upside rather than the downside, which is a good development,” Yardeni Research’s Ed Yardeni told CNBC. “It kind of raises the question of why the Fed is even considering lowering interest rates at the next meeting.” The job market is another indicator, and one that continues to paint a picture of an economy where growing businesses need more employees. “Just about every labor market indicator that’s come out…suggests the labor market is doing great,” Yardeni told CNBC. “There’s no recession.”

“We May Just Talk Ourselves into it”

Like many other electrical distributors, Mayer Electric in Birmingham, Ala., was on track to post 3-5% sales growth for 2019. “We’re probably leaning a bit towards the upper end of that scale,” says Wes Smith, president, who was in the middle of 2020 planning when he was interviewed for this article. He keeps an eye on economic conditions, and particularly gross domestic product (GDP).

“I don’t expect negative GDP, so I don’t expect a recession,” said Smith, who is concerned that enough reports about a possible downturn could help manifest one in the next year or so. “I think we may just talk ourselves into it, like the self-fulfilling prophecy.”

What also concerns Smith is the uncertainty over next year’s presidential election and other political undercurrents that could impact everything from spending to lending to interest rates. “The fundamental business community is flat right now, and we did just see [lower] GDP during the third quarter,” says Smith. “At this point, much of the economic growth is being carried by the consumer; if that slows down then things might slow down overall. Fundamentally, however, things are pretty solid right now.”

At Schaedler Yesco in Harrisburg, Greg Schaedler, vice president, says the year kicked off strong and found the company posting 12-13% year-over-year sales increases right through the second quarter. That activity has since declined slightly, with the distributor now on track to come out about 8% better than 2018.

Credit smaller construction backlogs with chipping away at some of those double-digit growth numbers, says Schaedler, who is cautiously optimistic about what’s in store for 2020. Like Smith, he’s concerned about the impact that the presidential election may have on the economy, but is confident that electrical distributors will see their way through. “We just came off of an Affiliated Distributors (AD) meeting where most of the 20+ companies there said sales were flat right now,” says Schaedler. “We aren’t expecting the growth we saw in 2018, but we’ll probably be in the 3-5% range.”

Look at Your Own Bottom Line

As we move toward 2020, and as more news emerges about a possible recession, keep these realities in mind: The stock market is healthy. Unemployment is low. The job market is strong. Interest rates are low. Personal incomes are growing, and inflation is in check. Rather than allowing themselves to get mired in the “possibilities” and worried about what might happen, electrical distributors should be building their business based on facts (i.e., the sales pipeline, upcoming projects, etc.) versus the fiction.

“Look at the health of your individual market before drifting into a debate about the health of the economy,” Fountainhead Commercial Capital’s Christopher Hurn advises in Forbes. “Look at your own bottom line before you let recession fears impact your decision making.”

 

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Bridget McCrea  is a Florida-based writer who covers business, industrial, and educational topics for a variety of magazines and journals. You can reach her at bridgetmc@earthlink.net or visit her website at www.expertghostwriter.net.

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