Forecasting is Treacherous Business:
According to Linda Yueh, Adjunct Professor of Economics, this year and next are likely to be filled with uncertainty. She names the events we all know are on everyone’s minds—Brexit, US-China trade tensions, and European Union reforms. Since Professor Yueh’s specialty is economics, she goes on to point out that those disruptions are occurring at a vulnerable time. Fifty percent of U.S. Chief Financial Officers (CFOs) are expecting a recession in 2019. More than eighty percent of
CFOs expect a recession by 2020.
Uncertainty Will Continue
For sure, economic and political uncertainty is going to continue. As nations struggle with how to fit into the global economy, they will make changes to their trade policies. The major and minor business cycles will also continue. According to the Institute for Trend Research (ITR), there are 100-year economic cycles. Impressed on that cycle is the faster five to seven-year cycles that we are used to predicting and on which we focus the most. That is why ITR is predicting a major recession in or about the year 2030 (100 years from the great depression) and a milder recession in 2019 or 2020 (overdue from the 2009 recession).
The U.S. economy, by almost all measures, is quite strong right now. So it’s hard to think about there being a recession on the horizon. We all know, however, that the recovery since the last recession has been long, slow, and steady. The recovery is about ten years old, and if it continues, will soon be the longest in U.S. history. As mentioned above, we also know that there are fairly predictable business cycles. Which means we are due for a downturn any month now. Let’s hope for a “soft-landing.”
So the question I ask is, why not prepare our personal and business finances for a downturn? If that downturn doesn’t materialize, then we’re still much better off than we would be if we blindly ignore the possibility.
Business leaders have always lived with uncertainty. Articles and books have been written to explain how to manage Fear, Uncertainty, and Doubt (FUD), or Volatility, Uncertainty, Complexity, and Ambiguity (VUCA). Given that, I’m not at all sure why there is so much hand-wringing over the prediction that things are getting to be a bit dicey and unpredictable. We have always had to deal with uncertainties in one way or another. That’s baked into our businesses.
It is true that change and disruption are happening at a much faster pace than in prior decades. It is also true that we are engaged in a much more interconnected and interdependent global economy. All of that, of course, adds to the complexity with which business leaders must deal. Still, it isn’t new; it’s just a bit faster and more complicated.
Business leaders take responsibility for guiding the organization through these normal business cycles. They are expected to understand and predict the big-picture for their organization’s environment. That is what separates leaders from managers. How will you prepare your organization for uncertainty?