This year in the U.S., stimulus-driven economic growth is the expectation. And the country will get a better view of what that stimulus will look like once the new presidential administration gives its fiscal outline.
Still, there are many other indicators businesses should consider as they try to regain their footing and make plans for the new year. But which are the indicators to watch, and how much reliance should businesses place on them?
Smart Business spoke with Jim Altman, Middle Market Pennsylvania Regional Executive at Huntington Bank, about the outlook for the 2021 economy and what businesses should consider to determine where, when and how to move forward.
What are the broader economic indicators to watch?
The Institute for Supply Management, which surveys both manufacturing purchasing managers and services purchasing managers, offers a sense of how it sees business in the coming six to 12 months. Those indicators are largely strong at the moment, especially on the goods side.
This recession has been different from past recessions because it’s impacted the services sector, which has never really been impacted by a recession before. There are mixed indicators coming out of the services sector, largely because the full impact of the vaccine has yet to be realized.
Goods, while not as big as services in the U.S. economy, are doing very well. But whether that positive momentum stays this year is unclear — the signals are mixed. For example, housing prices may moderate some this year. Last year was good for sellers, but there’s a chance this year will be a little bit better for buyers.
Employment is also offering very mixed signals. There is still a great deal of stress in the employment market around services. The goods market is, however, stronger at the moment in this regard.
The most likely reason the indicators are mixed is because all of the outcomes are predicated on the outcome of the virus versus the vaccine — whether or not we will be able to get the virus under control enough this year to give consumers and businesses the confidence needed for the economy to grow.
How much emphasis should businesses put on broad economic indicators when planning?
This past year was really about top-down economic guidance from the federal level. Now, more companies are giving their guidance on how they view their business moving forward through the still-disrupted economy. As earnings season plays out, publicly traded companies will give their own guidance, which will provide a more company-specific forecast. This should be helpful because it will result in more micro guidance versus the macro guidance the U.S. was largely working from last year.
The economic guidance from the federal level this past year really didn’t see the goods sector recovering as much as it did, which likely caused more pessimism in the economy than was warranted. Now there’s the risk that forecasts about the economic performance of the economy once fully open again will be too positive.
What conversations should companies have with their bankers now?
There have been so many never-before-seen circumstances this past year. The U.S. has never been through government-mandated shutdowns. Services have never been severely impacted by a recession. And there’s never been this much fiscal spending from central banks to support the economy this quickly, and it’s continuing to come in. This is uncharted territory. However, we’re on the other side of this recession. It’s not clear what the economy will look like with such pressure on small businesses. Companies will need to be vigilant about how they look at their balance sheets, as well as how they handle some of the other indirect pressures that will impact businesses both internally and externally. It’s prudent for businesses to work alongside their banker and other financial advisers to consider all the economic indicators as they plan for the year ahead.
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