Our industry and the overall economy has been enjoying a long (and well-deserved) recovery since the Great Recession:
- As of December, 2018, the current economic expansion which began in mid-2009 will have lasted nine years and six months (114 months).
- According to the National Bureau of Economic Research (NBER, the official arbiter of U.S. business cycles) since the modern era of macroeconomics began post World War II, the U.S. economy has experienced 12 cycles in total (including the present one).
- Since 1945, the typical completed economic cycle has averaged 58 months. Only one other cycle (120 months from 1991-2001) managed to last just a bit longer than the one we are presently experiencing.
While the economy is still robust in its recovery from the last recession with many economic indicators such as unemployment and manufacturing still on a solid trajectory, veteran managers in our industry recognize the inevitability of economic cycles that affect our firms’ clients, and therefore our own firms. So, it makes sense to plan now for what to do when—not if—the next decline occurs.
Even within the past few months some leading indicators are already portending the next downturn:
- A recent survey of CFOs (not within our industry) shows that almost half expect a recession by the end of 2019, and 80% expect it by the end of 2020.
- Trade disputes between the U.S. and various other countries have caused uncertainty and many companies have put their capital expansion plans on hold.
- The inverted yield curve on government bonds in which short-term rates are now higher than long-term rates, indicating a lack of long-term confidence in the economy.
- And, of course, the recent stock market slide and intensified volatility, in which it appears 2018’s gains will be wiped out by the end of the year, and severe past drops in the stock market have often proven to be a prelude to a recession.
For the past year in our strategic planning work, we have been prompting our clients to include strategies in their plans to prepare for the next downturn. We want our clients to be among the first to see it coming, not the last, and to have some initial moves already laid out now to avoid having to make difficult decisions at the worst possible time.
Beware and Prepare
Considering all these forces and factors, now is the time to ask yourself:
- What are the leading indicators—both in terms of the overall economy, as well as market-specific metrics—that would alert your firm to an impending downturn?
- What are the leading internal indicators within your firm (proposal activity, backlog, average collection period, etc.) that would alert your firm to an impending downturn?
- Who within your firm should look out for these indicators, external, firm wide, and within specific markets? How will this alertness be monitored?
- What steps can your firm take now to anticipate necessary future actions (in terms of market diversification, marketing and business development, staffing, cost management, etc.) so that your firm is already prepared with an action plan when a downturn happens?
If you have thoughts about this important and very strategic topic, we’d love to hear from you at firstname.lastname@example.org.
Thanks, and here’s to a strong 2019,