Where are we headed — recession or a boon?
I’VE ALWAYS BEEN A BELIEVER in selffulfilling prophecies. If economists keep telling the world we’re heading for recession, businesses and individuals will tighten their purse strings, the market will respond, and we will experience recession.
For the past year or two, that’s exactly what’s been happening. The “R” word has been floated so many times. But each time I’ve talked with sales managers and leaders of fluid power companies, they echo the same sentiment — business is still going strong, many are in growth mode, and they’re not experiencing any softness. What’s more, if that softness is coming, it’s not expected until the end of this year or next. Even companies like Danfoss saw a 7% increase in sales in 2023, despite what they referred to as “increasing headwinds.”
So just where is this recession?
At NAHAD in late April, Taylor St. Germain of ITR Economics said during the opening keynote that yes, we are in a recession (by definition) but it’s very mild. And many of the key indicators he highlighted showed positive progress.
Global GDP — If you look at global GDP, the U.S. still comes in at number 1, at 26%. The U.S. is further distancing itself from the number 2 country, China. He added that pending some major disaster, ITR did not foresee anyone in the conference room living to see China surpass us.
U.S. supply chains — Nationalism is the long-term play, with supply chains coming back on shore. This is generally a good thing for the state of U.S. manufacturing. But it means prepare yourself for more tariffs or protectionist policies. I’ve seen this myself repeatedly, as we’ve reported on many companies expanding manufacturing and distribution throughout North America.
Labor and wages — Wages being up during a time when the economy is weak is unusual. And that’s because of the tight labor market. We need to embrace AI, automation, and innovation to make the labor force more efficient. These sentiments were later reiterated at NAHAD by futurist Zack Kass, who noted that the growth of AI will be the most profound industrial revolution we’ll ever experience as humans, mostly because of how quickly it will propagate. Kass also added that there is a 12% increase in productivity by companies that use AI. Here, he offered a backward look at history, noting that both industrial revolutions of the past have produced a net result of new jobs. These jobs are safer and usually pay better, he concluded.
Consumer spending — We’re still spending money (mostly led by high-income earners). Two-thirds of GDP growth is consumer spending in the U.S. So, when the media says that consumer spending is down, that’s misleading. If you look at spending graphs over recent years, spending peaked with stimulus money, but the trajectory shows continued normal growth over the years.
Housing — This is one of the few problematic areas. The average mortgage payment in the U.S. is $2,356. That is double what it was three years ago. That’s concerning. And that’s what happens when the Federal Reserve raises rates in a way that they have, said St. Germain.
Commercial construction — Despite a projected decline in commercial construction, we should be excited about the future. U.S. manufacturing construction is behaving differently from other commercial construction datasets at a record high growth rate of 64%, resulting from onshoring and reshoring that’s coming back. This spells good news for fluid power users and manufacturers.
All these things point to positive outcomes in the coming couple years. If you’re feeling that little bump in the road that’s right now being called “recession,” just wait it out and we’ll be back in more optimistic territory soon.
Mary C. Gannon • Editor-in-Chief
mgannon@wtwhmedia.com
linkedin.com/in/marygannonramsak
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