5 economic trends to watch in 2019 (and into 2020)
It’s a challenging time for small and midsize businesses, thanks to the latest economic trends: unpredictable trade policies, waning consumer confidence, declining profitability and overall global economic uncertainty.
In this second half of 2019, CEO confidence is plummeting. In fact, just 13% of CEOs expect economic conditions to improve this year and 35% expect conditions to further deteriorate, according to the latest Vistage CEO Confidence Index.
Unfortunately, things will likely get worse before they get better.
“Right now, we’re very much near the top of the roller coaster looking down,” says Connor Lokar, an economist from ITR Economics. “We’re not at the bottom yet.”
Lokar predicts an upswing by the second half of 2020. But in the meantime, decision makers need to understand the key factors driving the current downturn. To that end, Lokar shares five economic trends to watch for in 2019 and heading into 2020.
1. Uncertainty surrounding tariffs
In the second half of 2019, protectionist trade policies will continue to generate a “glut of uncertainty” domestically and globally, Lokar says. Apprehension is only building around questions like, “What is the U.S. and China supply chain going to look like? Are these tariffs here to stay? Will they continue to escalate? Or, are we going to see them stripped away in the second half of this year?” Lokar warns that decision makers risk “paralysis via analysis” as they navigate the current volatile trade environment.
2. Waning consumer confidence
As prices rise, consumers are less able to spend and save. “Disposable income is starting to decelerate. Those trend lines are tipping,” Lokar says. “We see some consumer vulnerability. We’re seeing the consumer start to pull back somewhat.” Some healing in the stock market bolstered consumer confidence through much of 2019, but the ongoing China tariff situation has made things a little rocky. “The stock market is not the economy by any means, but the general lay person thinks it is,” Lokar says. “When those trend lines start to waver, as we’ve seen in the last several months, that doesn’t help typically on the confidence and perception side.”
3. Decelerating profitability
Profitability numbers have been falling for a few quarters now, and that has cash-flow implications for businesses. Manufacturing capacity utilization rates are also declining year over year, down 1.2% in the U.S. manufacturing sector. The good news? This seems to be a mild deceleration. “It’s not quite a ‘hunker down and go to the bunker’ type situation that 2008, 2009 was,” Lokar says. “It’s not going to be a layoff-heavy type of cycle.”
4. Sliding interest rates
Interest rates are sliding back in response to international economic distress, mild inflation and a robust appetite for U.S. treasuries, Lokar says. In fact, “interest-rate traders are actually pricing and now they’re expecting one, if not two, 25 basis point cuts from the Feds this year.” This opens the door for some debt-restructuring opportunities, which he sees as “a nice silver lining of sorts.”
5. An uptick on the horizon
There are challenges ahead, but the outlook is not all negative. “We’re looking for the ‘bottom’ to occur in the first half of 2020,” Lokar says. “By the end of the second half of ’20, things are going to be on an upward trajectory and accelerating again by that point. And then that growth is going to continue to pick up as we move to 2021.” Twelve months from now, Lokar expects a return to the front side of the business cycle.
Read more from Joe Galvin: Customer Growth: Decisions for SMB CEOs.