January '20

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22 • RV PRO • January 2020 rv-pro.com Disrupted Supply Chains A scarcity of skilled workers is just one of the many headwinds restraining American businesses. Another is supply chain confusion – a direct result of the China trade wars. "Uncertainty about international trade rules can throw havoc into the production system," Conerly says. And that havoc is only intensified by the complexity of modern supply chains. "Parts for finished goods are coming from multiple countries. The more complex the chain, the less resil- ient it is, and the more opportunity for things to turn bad." Adjusting to supply chain disruption is easier said than done. "Some of our companies are trying to move their supply chains out of China, but that means abandoning long-held rela- tionships," Palisin says. "Validating new suppliers is costly and time-consuming. Smaller and mid-sized companies, in par- ticular, do not have the resources to quickly find new sources of materials." Lending urgency to the supply chain disruption is the knowledge that long-es- tablished relationships, once lost, can be difficult to restore once trade tensions ease. And on the flip side of the trade coin, domestic makers fear losing their overseas markets permanently to rivals from other countries. In a reflection of these supply chain disruptions and of the slowing global and domestic economy, Moody's expects corporate profit to increase by only 1.9 percent when figures for 2019 are finally tallied. This less-than-stellar increase only adds to the uncertainty that is keeping companies from investing in the very capital projects that can help drive eco- nomic growth. Moody's expects better results in 2020, when corporate profit growth should increase by some 4.9 percent. "Contributing to the rebound is a weaker U.S. dollar, which will improve the competitive positions of U.S. goods, so that profits from abroad will increase," Koropeckyj says. She adds that while the 2020 figure looks comparatively robust, it remains weaker than the average 5.2 percent growth between 2009 and 2018." The Road Ahead Despite the uncertainty that character- izes many areas of the economy, a healthy labor market and high consumer confi- dence have done a good job propping up a decelerating business environment. Will they continue to do so? And when will the inevitable recession arrive? That last question is particularly important, as two-thirds of the nation's chief financial officers expect the United States to tip into an economic downturn by the third quarter of 2020, according to a Duke University/ CFO Global Business Outlook survey. In the early months of the new year economists suggest mon- itoring financial news for indicators of a recession, often defined as two con- secutive quarters of negative economic growth. Increasing stock volatility is one such indicator, as is an inversion in the Treasury yield curve when short term rates are higher than long term ones. But perhaps the most important indi- cator of pending trouble is a downturn in the employment picture. "The job market is key," Koropeckyj says. "If businesses begin to lay off workers, that will be fodder for recession. Watch for changes in monthly employ- ment growth and in weekly claims for unemployment insurance benefits." Rising unemployment, says Koropeckyj, will result in a decline in the very consumer spending that has been the driving gear of a healthy economic machine. "Once unemployment starts rising," she says, "we are either already in a reces- sion, or will be in one very soon." S PEC I A L S EC T I O N O U T LO O K 2 02 0 Read What the Experts Were Predicting for 2019: Read What the Experts Were Predicting for 2019: https://nbm.uberflip.com/i/1063031-january-19/173? "In 2019, interest rates turned lower rather than higher, which was a surprise. The reason was the unanticipated trade war, which was clearly a negative and reduced economic pros- pects significantly relative to expectations." Scott Hoyt, senior director of consumer economics Moody's Analytics "Manufacturers are nervous, despite their success in reaching their earnings estimates. This is showing up in capital spending numbers, which were big in 2018 coming out of tax reform, but which are not so big now." Bill Conerly, principal Conerly Consulting BILL CONERLY PHOTO COURTESY OF BILL CONERLY SCOTT HOYT PHOTO COURTESY OF MOODY'S ANALYTICS

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