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ITR Economics: Insights from our CEO

Posted By NAFCD, Monday, April 9, 2018

Three Steps to Prepare for 2019 Business Cycle Decline

We are at that point in the business cycle when the leading indicator signals become “mixed.” Our leading indicator methodology is set up to account for this. We wait until two, then five, and ultimately 10 indicators have flipped from rise to decline, as is the case for 2017-2018. When two leading economic indicators shift from rise to decline, it gets our attention. When five change direction, it is that much more significant, and you will start to see a shift in the emphasis of the presentations conducted by ITR Economics’ speakers . By the time 10 roll through a high, it typically is reasonably obvious that the economy will move through a period of slowing rise in the immediate future. Slowing rise normally turns into contraction.

Step 1: Know what the leading indicators are telling us.

Globally there are easily more than five leading indicators that have turned down. Restricting our view to just the US reveals that we have five leading economic indicators that are trending lower:

  • Purchasing Manager’s Index (Production) 1/12 rate-of-change
  • Bond Prices
  • ITR Consumer Activity Leading Indicator™
  • Savings as a Percentage of Disposable Personal Income
  • ISM’s Non-Manufacturing Purchasing Managers Index

Tentatively rolling through the top in the next one to two quarters:

  • S&P 500
  • ITR Leading Indicator™
  • Nondefense Capital Goods New Orders (excluding aircraft) 3/12 rate-of-change

Step 2: Know where you fit within the context of markets and indicators flowing through the business cycle.

  • Run the rates-of-change on your business (use revenue or shipments or orders).
  • DataCast can create your company-specific rates-of-change
  • Review the ITR Trends Report™ to see where your business fits within the ITR Trends 10.

Step 3: Ascertain which of your markets (if any) will perform like GDP in 2019 and which markets will perform more like US Total Industrial Production; the latter will experience a deeper recession, and you will need to take more action to protect the company.

We will talk about economic forecasts and how they can help you maintain (or even improve) profitability in a future blog.

Brian Beaulieu
CEO

ITR Economics™ provides the best economic intelligence to reduce risk and drive practical and profitable business decisions. Since 1948, we have provided business leaders with economic information, insight, analysis, and strategy. ITR Economics is the oldest privately-held, continuously operating economic research and consulting firm in the US. With a knowledge base that spans six decades, we have an uncommon understanding of long-term economic trends and how to react to critical changes in market conditions. Our reputation is one of excellent, independent and objective analysis.

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