Navigating the Prerecession and Preparing for the Unknown
September 16, 2022 4:00:00 PM

We’ve all seen the headlines; the United States is barreling toward a recession. We’ve all felt the economic strain of the pre-recession period: record gas prices, skyrocketing inflation, stock market instability, housing crisis, goods shortages, labor shortages, the list seems almost never-ending. TD Securities recently said there is more than a 50% chance of a U.S. recession within the next 18 months.

It feels like we’re finally reaching the pinnacle of nearly three years of economic crisis and global unrest.

So, in this period of pre-recession, or “precession,” it’s essential for manufacturers to prepare now. Heed the lessons of the pandemic and Great Resignation; it’s far better to prepare before a disaster than try to cope during it.

So, What Defines a Prerecession?

Prerecession, or pre-cession as we like to call it, is defined as “existing or occurring before an economic recession.” Thanks to social media and the internet making economic data more accessible, we are uniquely situated to address issues in our present state to mitigate the consequences of the recession or dodge it altogether.

Supply chain disruptions in Asia and economic sanctions against Russian oil and gas have exacerbated the U.S. inflation problem that began in 2021. The Federal Reserve insufficiently responded to bring inflation under control. The response by governments has been to increase interest rates at the fastest rate in 30 years to balance demand and ease inflationary pressures. This is a classic recipe for a significant bullwhip effect leading to the next phase: curtailment of demand, overstocked inventories, and global recession and stagflation.

The BEA recently reported that the Personal Consumption Expenditures (PCE) price index rose 6.3% in May. Core PCE—the preferred measure of U.S. inflation—was up 4.7% from a year ago. Consumers are feeling the strain of increased costs for everyday goods and services. The Bureau of Labor Statistics reported on July 13 that the consumer price index (CPI), a measure of the cost of living, soared by 9.1% from last year.

When the predicted downturn hits, it could hit hard. Managing costs and optimizing manufacturing operations will be essential not only to survive but to emerge from the downturn stronger, leaner, and better able to thrive in the post-pandemic economy.

How Can You Prepare Today?

There are several efforts manufacturing leaders can set into motion today that could significantly reduce the harm done by a potential recession. Things like:

  1. Uncovering and Solutioning Hidden Costs
  2. Optimizing Inventory
  3. Reducing Waste
  4. Investing in Growth Opportunities
  5. Increasing Departmental Visibility and Transparency
  6. Re-evaluating Pre-Existing Processes (hiring, production, audits, etc.)
  7. Completing Data Audits

Manufacturers need 100% visibility into their operational losses that are often overlooked or out of sight in better times. These hidden losses can account for up to 50% of asset downtimes, which can be easily avoided once they’re brought to light. Manufacturers need a fully contextualized timeline of their operations that can be used immediately by frontline, engineering, and management teams to stem hidden losses.

Organizational investment in cost-effective, smart solutions that fully encapsulate on-site procedures and create an atmosphere of growth will be key to navigating this potential crisis. Manufacturers that can quickly rectify hidden losses will be the success stories that emerge during times of looming recession.

Something to Bear in Mind…

While many are reporting and panicking about the looming recession, not all economists are convinced that a recession is coming at all. U.S. companies are still hiring, and consumers are still spending. Forbes reported that the U.S. economy added 372,000 jobs in June, far exceeding estimates of 250,000 new jobs. That type of significant job growth doesn’t typically coincide with a U.S. recession.

Additionally, a recession isn’t necessarily the end of the world. In fact, they’re much more common than we realize. Since World War II, there has been about one U.S. recession roughly every five years. Also, recessions don’t typically last very long. The average duration of a U.S. recession is just 11.1 months, and the Covid-19 recession in early 2020 lasted just two months.

So, now is not the time to panic; it’s time to plan. Regardless of whether or not a recession hits in the coming months, there are steps your business can take to streamline and future-proof. An experienced partner, like MAU, can get your processes in check so that regardless of the storm, it can be weathered.

For more insight on creating a resilient business, check out MAU’s “Keys to Building a Resilient Supply Chain” white paper.