It’s human nature to resist change, especially when change means moving from a growing economy into a recession, said ITR Economics’ Alan Beaulieu at the Industrial Supply Association Product Show & Conference in San Diego. When things are going well, distributors often react to the idea of an upcoming downturn with a “not me” or a “not this time” mindset, Beaulieu says.
But when things are going well, and have been for a while, it can be a sign that the other side of the natural economic cycle is approaching. “When you’re feeling the happiness,” Beaulieu says, “start looking around.”
Downturns aren’t necessarily bad, he says, and recoveries aren’t necessarily good. But those who cling too long to the upward side of an economic cycle will be unable to prepare for slowdown. They may even deny it after it has already begun, throwing money into the wrong places when it may be better spent elsewhere or saved.
To predict downturns and their relative severity, Beaulieu recommends distributors follow economic indicators such as the Purchasing Manager’s Index and the Federal Reserve’s industrial production report. Chart major indicators’ performance alongside your own business’s performance to spot relationships between them, he says. Distributors should also do an internal analysis to determine whether the timing of that relationship may be tightening or lengthening.
Beaulieu says predicting a downturn when everyone else is feeling optimistic may put you out of sync with those around you, but what matters isn’t being popular or making optimistic predictions. What matters, he says, is being right.
