If you are a fan of the hit show “Game of Thrones,” you’ll appreciate where I’m coming from: The ominous pronouncement, "Winter is Coming," always managed to capture my attention since I could see through the fictional seasonal meaning it foretold and apply it to events in everyday life.
The first time I heard those words, I couldn't help but feel a sense of foreboding. But as time went on, winter never actually arrived in Westeros. A similar mindset has taken hold in the U.S. business world, where we have been hearing for the past two years that we are in a recession -- when in reality, we are not and have not been.
How’s that for a seasonal switcheroo?
So, what is the fundamental outlook for the economy and your business growth? In a recent blog by Brian Beaulieu, CEO and Chief Economist of ITR Economics, titled "A 'Strong' Economy? Time to Face Reality," he sheds light on the matter. Beaulieu points out that the labor market is often touted as the primary gauge for the strength of the U.S. economy, but it is, in fact, a lagging indicator. Instead, we can see negative road signs ahead if we shift our focus from the rearview mirror to the windshield.
Adjusted for inflation, Gross Domestic Product (GDP) has experienced its second consecutive quarter of slowing growth. This aligns with the forecast by ITR Economics, which predicts minimal ascent this year and a decline in 2024 based on leading indicators. Considering these indicators and preparing for the recession that ITR forecasts will hit in 2024 is crucial, especially considering their impressive 94.7% accuracy 12 months out.
Now, you might be wondering what steps you should take. Should you sell everything and batten down the hatches? Beaulieu suggests otherwise. Instead, it is best to prepare for the impending recession. Before venturing forward in a storm, you must take stock of where you currently stand and where you want to be when the storm eventually subsides.
If your aim is survival, hunkering down and riding out the recession may seem viable. Or if you want to thrive despite challenging times, adopting a "damn the torpedoes…full steam ahead" strategy would be unwise. As history shows, Admiral Farragut was fortunate to escape with his life in Mobile Bay. A wiser approach might be to embrace the buffalo flag and move directly into the storm but with a comprehensive understanding of your current position.
To do this, you must assess the economic health of your business. Without this knowledge, you'll be navigating without a sextant. Your business falls into one of four economic states, and to determine which one you're in, you need data. One way to assess your financial state is by analyzing the 3/12 ROC (Rate of Change), a leading indicator, and the 12/12 ROC, a lagging indicator. Putting together three years of month-to-month company revenue, and applying these indicators, can help you gain the proper insights. The process takes a maximum of 90 minutes initially and only five minutes for monthly updates. Graphing this data will provide a visual representation of your economic state, history, and future.
With a clear understanding of your business's economic condition (Recovery, Accelerating Growth, Slowing Growth or Recession) and direction, you can devise growth strategies that will thrive despite the declining state of the US economy. However, time is of the essence! You must act now, before the recession hits. Refrain from relying solely on news reports or assuming that your business will inevitably suffer because of the overall economic climate. There are ways to succeed even when the broader economy is in decline.
If you're seeking more information and guidance, give me a call. I’d be happy to take you through the 3/12 and 12/12 ROC exercise and help you navigate the stormy economic landscape, ensuring your business remains economically healthy.
Remember, as winter never arrived in Game of Thrones, your business doesn't have to succumb to an economic deep-freeze. By understanding your business’s economic state and planning strategically, you can weather any storm that comes your way and emerge stronger on the other side. Prepare now and seize the opportunities that lie ahead.