Did you feel that? It’s the slowdown of the U.S. economy, although we’re not quite on the verge of the next recession—at least not yet.
With that said, a pair of economists warned integrators at the PSNI Supersummit and NSCA Business & Leadership Conference that it’s time to start preparing for the next economic cliff-dive, whenever it actually happens.
Alan Beaulieu, principal at ITR Economics, told PSNI members, “The world is slowing down and the speed of growth will be harder to come by in 2019.” Beaulieu forecasts 0.9 percent growth in the U.S. economy this year, down from the past few years in the 2 and 3 percent range.
“You’re going to feel it,” said Beaulieu. “More importantly, your customers are going to feel it.” Beaulieu sees a rebound in the second half of 2020 and into 2021.
Chris Kuehl, managing director and co-founder of Armada Corporate Intelligence, told NSCA members at the 21st annual BLC the return of inflation is “much more insidious than a recession.”He expects we’ll see another recession at the end of 2020 or perhaps in 2021 but says it could be U-shaped and be a means to “eliminate the not-very-good companies.”
“Inflation hurts everybody,” said Kuehl. It forces business owners to decide whether to swallow the added costs themselves or pass them on to their customers, he said.
“We’ve been through a 10-year period that’s seen a little bit of everything—a crushing recession, a really slow recovery and growth that was almost unparalleled,” said Kuehl. “The danger that I see with companies is they become very attuned to the most recent past.
“Going forward, you should assume growth, but probably not as fast as you saw last year, assume that consumers will be relatively secure, but be aware of the unemployment rate, even if it doesn’t go up in any significant way. There’s a psychological effect. It’s the same thing with inflation. Consumers will shift very fast in accordance with those two things.”
Get Ready for the Next Recession—and the Recovery
So what can integrators do to stem the economic tide when the inevitable next recession hits? Perhaps at least as important is how you prepare for the rebound, whenever that happens.
“What do you need to get ready for a global economy that’s going to take off? You can lose some business if you’re not ready,” said Beaulieu.
One suggestion from Beaulieu is to rid your company of the employee or the philosophy he calls a “basset hound.”
“There’s someone or something in your company that’s taking up resources but not producing anything,” he said. “It’s time to take it to the pound.”
A lack of qualified help could continue to be a problem for AV integrators for the next 11 years or so, said Beaulieu, which is tied in part to wage pressures.
“You’re going to love the 2020s,” said Beaulieu. “It’s going to feel really good. It usually does right before you crash.” As more Millennials take leadership positions in their companies and Baby Boomers retire at a rate of 10,000 per day, there will be what Beaulieu calls a “cultural clash” in business in the 2030s that could lead to a troubling decade.
Economic Factors Behind the Next Recession
Kuehl echoed Beaulieu’s concerns about the labor force, saying, “Fewer people available are usually able to demand a higher wage, but most companies are hiring unqualified workers.”
Beaulieu said the best time for integrators to sell their businesses will be in 2026 and 2027 to give the sellers three years or so for their earnouts.
In the short term, Beaulieu said he sees optimism in the hotels and private education sectors, a mixed bag in the corporate space and dips in the sports stadium and health care markets.
Because the U.S. is the world’s second-largest exporter of goods and services, the tariffs imposed by other countries have hurt the U.S. economy, said Beaulieu. Exports from China are down 18.7 percent from last year and imports from China are up 7.7 percent as the countries continue to discuss whether the Trump administration will iimpose 25 percent tariffs on Chinese imports.
That means “we’re either buying from China anyway or sourcing from somewhere else,” said Kuehl. He compared the political stalemate to a “full-on mud-wrestling match,” adding business owners are “frustrated these issues aren’t getting resolved.”
In the short term, Beaulieu said he sees optimism in the hotels and private education sectors, a mixed bag in the corporate space and dips in the sports stadium and health care markets. Retail spending is going down, he said, while material costs are also dropping.
Public sector construction has been on hold for years, said Kuehl, who called the transportation sector “the canary in the coal mine.” Non-residential construction has been “pretty steady,” he said, but it may go down slightly because of trepidation from banks on loans with an economic downturn on the horizon.
“Banks don’t like to lend money when it’s worth less when you pay it back,” he said, referring to the effect of inflation on loans.
Warehousing is “on fire right now,” said Kuehl, driven by some companies stockpiling assets before the tariffs hit. Because Millennials tend to be more interested in multifamily living than single-family homes, new home construction is in an odd place right now. Many homeowners are retrofitting their home for elderly living too, he said.