At the May 2023 CSIA Executive Conference, economist Alex Chausovsky, Vice President of Analytics and Consulting at Miller Resource Group, gives timely advice to executives in the control system integration industry on the current state of the economy and its future outlook.
By Christine McQuilkin, vice president of account services
In his keynote presentation at the Control System Integrators Association (CSIA) Executive Conference in New Orleans, LA, economist Alex Chausovsky from Miller Resource Group offered a message of economic hope amid news headlines predicting recession doom and gloom.
Keep Calm and Carry On
Chausovsky’s economic presentation centered around this simple message “keep calm and carry on.” He advised the filled-to-capacity crowd at the CSIA conference, “the bad economic news you are hearing is not true.” He elaborated that the U.S. is not on the losing side of the trade wars with China, despite what the audience may have seen in headlines. The U.S. currency is strong and remains the source of flight when economic turmoil and uncertainty descend on other nations around the world, thanks to our rule of law backed by a strong military. While Russia continues to make the news, Chausovsky calmed fears stating that Russia is “a glorified gas station that sells guns.” He reiterated, “the data tells a different story than the news.”
Quelling Recession Fears
With charts illustrating that the country’s real GDP is at a record high, Chausovsky proved that no recession has hit the U.S. thus far. Economic indicators point to the economy suffering a “substantial slowdown” in upcoming months, but the country has yet to hit the threshold for a recession. With personal consumption being the largest driver of economic activity in the U.S. and the labor market remaining strong, Chausovsky predicts the economy is “headed for a soft recession later this year: soft, mild, and short.”
“We are past the peak; we are now in deceleration mode, which is a normal part of the business cycle,” he explained. “We are navigating the inflation relatively well, and a soft landing is likely.”
Predicting a low-single-digit contraction, Chausovsky believes by late spring 2024, the business cycle will again be back to a rising trend.
Having analyzed consumer debt, Chausovsky has no concerns with the bulk of it, which is currently engaged in low-interest mortgages, while auto loans and credit card debt carry the highest risk of default. Inflation and rising interest rates have brought the average car selling price to more than $48,000, with associated sky-high monthly payments.
“The average new car payment is more than $700 per month, with Gen Z carrying monthly car payments of more than $1000,” he said. “Many from Gen Z are finding they need to choose between buying a car and buying a house.
Profitability During an Industrial Sector Slowdown
Chausovsky cautions the audience, comprised mainly of executives in the control system integration industry, that there will be a substantial slowdown in this sector. He said, “You are likely working through your backlog right now, with new orders softening. Industrial productivity metrics will likely go negative for the second half of this year.”
Chausovsky believes in the second half of 2023 and the first half of 2024 there will be a propensity for the U.S. economy to go into a recession.
“With CapEx spending slowing down, companies must focus on growing profitability in the current phase of the business cycle.” He implored, “Don’t get caught up in worrying about top-line growth right now.”
As a driver of profitability, Chausovsky urged, “Don’t be behind the curve on implementing price increases.” With inflation slowing, buyers are losing their tolerance for price hikes, and may start pushing back.
Economic Leading Indicators
Discussing economic leading indicators, Chausovsky educated the audience on how to find and use the tool to gain visibility into the future.
“Leading indicators are not a forecast,” he said, adding that the information is predictive with a high degree of certainty. And, the leading indicators show “we will enter some mild negativity.” The purchasing manager’s index can give one of the longest views into the future, “a full 12-month warning,” said Chausovsky.
The consumer price index is an important metric economists study, and Chausovsky said recent increases have been driven by rising prices in energy and cost of goods, followed by food. He shares that the inflation profile is consistently slowing, and inflation will continue to abate over the next 6-12 months.
The producer price index, which may most closely relate to the audience’s industry, has dropped more dramatically than the other price indicators, and has fallen back to 2018-2019 levels.
Chausovsky believes that there will be further downside pressure on inflation, and that “the Fed is basically done raising interest rates.” He believes that the Fed probably won’t lower interest rates in 2023, and we will have “stable but elevated rates” for the near future.
Hiring Top Talent
“Don’t dread a recession,” Chausovsky advises. “Position your business to take advantage of the next rising trend in 2024. Stack your pipeline.”
With the labor market still incredibly tight, Chausovsky believes we will have “a recession with full employment for the first time in history.” He does not believe that labor will become cheaper; instead, the current candidate-driven labor market will continue to become more expensive. Although there is extremely fierce competition for talent, the crazy starting salaries and five-figure signing bonuses are a thing of the past.
Chausovsky urges employers to ask themselves a fundamental question: Are my offers to incoming candidates competitive? He advises using Labor IQ to gather data, as the platform uses verified W-2 information to validate salaries.
“On average, 30% of employees are currently underpaid,” he said. “Conducting an internal salary audit can highlight vulnerabilities and allow you to try to keep valuable employees.”
To hire top talent, Chausovsky advises companies to treat hiring as a marketing and PR task. “You have to give potential employees compelling reasons to come work for you. Recent survey feedback suggests that candidates expect communication at least every three days and an expressed interest after two interviews.”
Chausovsky’s CSIA keynote presentation touched on economic and business topics important to the control system integration industry, and his mix of educational and informative content hit the mark.