As a business owner, wouldn’t it be nice to know how the economy is going to perform in the future, so adjustments can be made to the business model before a change in business climate? I recently attended Alan Beaulieu’s economic forecast, sponsored by Barnes Dennig, Huntington Bank and DBL Law. Alan discussed the economic outlook for 2016 – and even 20 years in the future – as well as the reasons why he is confident his predictions of the future are accurate. Utilizing Alan’s forecast means business owners don’t have to wait until they’re in the middle of an upward or downward economic cycle when it may be too late to make the appropriate adjustments.
By using historical trends with current macro-economic, governmental, and demographic data, Alan’s company, ITR Economics, warned its clients in March 2006 that a recession would begin in early 2008 and extend through 2009. They also accurately predicted the recession would be worse than anything in the previous 25 years. ITR boasts a 94.7% forecast accuracy rate when looking at macro-economic data one year later. I was intrigued by his presentation (albeit a little frightened of his prediction of another Great Depression on the horizon), so I decided to read Alan’s newest book, Prosperity in the Age of Decline. By reading the book, I hoped to gain insight into the predictions and determine strategies to help plan appropriately for future business cycles.
Throughout the book, Alan and his co-author and brother, Brian, give individuals and business leaders information and strategies necessary to plan for the upcoming business cycles they predict for the U.S. and globally. The authors begin by looking at leading indicators in the market to help identify economic trends and which indicators provide the most relevant information far enough in advance to allow businesses to plan for the upcoming changes. A few examples include Corporate Bond Prices (12/12 rate of change), Institute for Supply Management’s (ISM) Purchasing Managers Index, and the U.S. Leading Indicators as issued by the Conference Board, among others. The authors predict another recession around 2018, or 2019, leading into a prosperous period during the ‘20s, which will eventually give way to a Great Depression around 2030. An aging population in 2030 (almost 20% of US population will be 65 and older versus 13% in 2010), a rising national debt, the Medicare Health Insurance trust fund projected to be depleted by 2026, and the Social Security OASI trust fund projected to be depleted by 2036 were among the leading drivers signaling a Great Depression in the future, unless dramatic change is implemented now.
Managing Business Cycles
How do business leaders prepare for the upcoming business cycles to make certain businesses thrive during the economic good times and stays afloat during the economic down swings? Knowing when the various cycles are coming a year or two in advance is only half the battle. Knowing how businesses should react and strategies to implement is just as important. The Beaulieu brothers discuss various strategies for each phase of the business cycle and give ideas for setting businesses up to succeed in the next 20 years and beyond. They end the book describing eight signs that will signal the Great Depression is on the horizon, as well as six things the younger generation should do to help minimize their risk during that time. Sure, the Great Depression can be avoided or not occur as they predict, especially if our nation acts quickly to raise the retirement age to at least age 72, decrease government spending and concentrate only on mission-critical programs. Also, significant technological advances need to occur (such as a new energy source that could boost the US economy and tax revenues substantially), and our culture must decide to dedicate itself to healthy lifestyles that would significantly reduce health care costs. But the chances of those suggestions occurring quickly appear slim in our current environment.
Wouldn’t it be great to be prepared and have a good strategy in place in the event the depression does occur? One thing is certain: our economy will continue to experience various highs and lows throughout time. Predicting when these cycles will impact businesses and having a strategy in place for when they do, will certainly set up business owners to succeed in the years ahead.
If you are interesting in learning more about what Alan had to say about the 2016 economy, let me know. I’ll be happy to send you a copy of the presentation audio. Also, Alan will be returning in 2016. Keep an eye out for the invitation later this year, and let us know here if you would like to be notified when registration for this event opens.