Paul shares some insights on the indicators of a recession.
“The stock market has predicted nine of the last five recessions.” Paul Samuelson, American economist. (Maybe don’t just look at the stock market.)
Purchasing Managers Index is above 50% (at the time of recording) but trending downward.
Inflation and the Federal Reserve’s reaction to it is another indicator of an impending recession.
Go to “main street” and get some feedback. Talk to your friends. Your general sense of unease is real.
There’s always going to be tough times on the horizon. But there’s always an even longer period of growth to follow.
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How do you know if a recession is coming?
(Transcribed from podcast)
On today’s episode, we’re going to talk about an upcoming recession. And let’s not get scared. Let’s not get worried. Let’s get excited because this can create some opportunity for you.
So here’s what triggered this question or this topic for today’s show. I was casually talking to a salesperson over the weekend, and we were talking about recessions. We were talking about just the general state of business. I asked the salesperson how they were performing. Everything is looking good, but the topic of a recession did come up. And sometimes salespeople will ask me, “How do you know if a recession is coming or what are some of the indicators?” And I want to fully disclose this before we get started. I’m not an economist; I’m not an expert on the economy and what happens, but I’m a business guy. I’m a sales guy. So, there are things that I experience, things that I look at to help me gauge what the economy is doing. So I’m just going to share a couple of insights and ideas—things that you should be aware of. So how do you know if a recession is coming?
Before we get into today’s episode, just wanted to make a quick announcement. I am thrilled to let you know, we are going to have our very first Selling Through Tough Times one day public seminar at my training center just outside of St. Louis, Missouri. This one-day event is going to be—it’s going to be inspiring. You are going to leave here equipped with the tools you need to sell through any downturn. So whether you’re facing a downturn in your industry, whether you’re facing extreme pricing pressure due to these rising costs, if you’re facing a slowdown or if you’re just struggling in general and you need a mental reboot, this one-day event is for you. It’s going to be held August 17th. We’re going to have more details on how to register. You can visit Toughtimer.com and find out more details. I hope you’ll join us. We’re going to limit it to twelve people. Check it out if you are interested. We’ll take care of you with registration, all that. Links are going to be on this episode’s webpage.
If you can’t join us for the live event, make sure you pick up your copy of Selling Through Tough Times. It’s available wherever you get your books.
So let’s get back to it. How do you know if a recession is coming? Well, first and foremost, we need to define what is a recession. So it’s basically a slowdown. It’s a slowdown in the economy. And technically speaking, it means you have two consecutive quarters of economic decline as it relates to GDP. So GDP (Gross Domestic Product) is the benchmark. It’s the metric we use to technically determine if we’re in recession or not. Now we also have what we call rolling recessions. And rolling recessions are specific to a certain industry. For example, when oil and gas dipped below $0 a barrel during, I think it was, April of 2020, or whenever it was, that would be a rolling type recession. The whole industry was affected. The industry was facing a downturn. So that’s what that is. It’s an industry-specific downturn.
Now we’re going to talk about a few indicators. The hairs on the back of your neck may be standing up a little bit right now, those are the little indicators that tell you if a recession is coming—if tough times are on the horizon.
So first and foremost, let’s look at the stock market. Now, the stock market in and of itself, isn’t always the greatest indicator of a pending recession. In fact, Paul Samuelson has a great quote, he said that the stock market has accurately predicted nine of the last five or sessions. Hilarious. It goes to show you, this isn’t, by itself, the only indicator. But there are things that we need to be aware of.
So, right now, we are very close to a bear market. A bear market, when it dips below 20% of a recent high. We’re teetering on that. We’re getting pretty darn close. We are in market-correction territory right now. Now, you think about that, just let’s use some common sense. When people are selling off stock, they’re less optimistic about what the future earnings are going to look like for that company, or they feel like they’re not going to get a return that they want in the long-term, or in the near term, rather. So that in and of itself, it’s something to think about. It’s something to consider.
Now, another thing would that all follows—the Purchasing Managers Index. Right now, it is above 50. And whenever that number is above 50, it’s a sign of economic expansion. What’s happening now, even though, right now, it’s at 56.10 as I recorded this podcast. It’s above 50, but it’s trending downward. If you look at it from this year, at the beginning of the year in January, it’s trending downward. Although it’s still above 50, it’s slowing, and we need to be aware of that. So that’s another thing to consider.
Now let’s look at inflation. I mean, inflation is another indicator that we’re getting squeezed on margins, that costs are going up. And due to inflation, at least here in the U. S., the Federal Reserve is raising interest rates, and they’re going to continue to raise them. Now, in Selling Through Tough Times, I mentioned that the Federal Reserve rate—when we look at that and it’s being lowered—if the fed is lowering the rate, it means that they’re trying to spur economic activity. Now we’re doing the opposite right now—raising interest rates. And again, that is more tied to controlling inflation. That’s about controlling inflation right now and various other factors as well. But that means they’re trying to slow it down. Now, if we’re slowing the economy down and it’s already starting to slow as a way to combat inflation, that’s going to lead to recession. In fact, some believe that the Fed is almost trying to put us into a recession just to slow things down. So, something to be aware of. So those raising interest rates, we’ve got inflation, we’ve got PMI, we’ve got the stock market. So there’s all these indicators. The housing market is looking like it’s starting to slow down as well.
There’s other factors to consider. These factors are less tangible, but they are worth noting. It’s not enough just to get your news from Wall Street; go to Main Street as well. So here’s how you can take it to Main Street to get some feedback. One thing, and this is something my dad always mentioned to me, whenever he would ask his delivery guys (you know, the FedEx, UPS, postal people), “So are you guys delivering more packages or fewer packages?” He would literally ask them, and he would use that as an indicator—as an indicator of economic slowdown. And I think there was, I want to say it’s Greenspan, who used to look at some sort of index on corrugated packaging—there’s like a packaging index. I don’t know what it is, but he would look at that. And that’s an indicator, too, of what’s going on in the economy. So talk to your delivery guys. Ask them if they’re busy, or if they’re busier, if they’re starting to slow down. That can be an indicator. It’s less scientific, but hey, there’s some logic there at least.
Talk to your customers. Your customers are a great source of information. If they start to slow down, if they notice a softening in demand, or in their business, that’s something to take note of. And if you’ve noticed that with several customers, that’s going to be an indicator.
Talk to your business colleagues in other industries. I mentioned this in a previous episode. I was out playing golf with some buddies. I’ve got buddies in all different types of industries: some tied to banking, selling product, selling shoes, one sells chickens, digital marketing services. A little bit of everything, okay? So talking to your business colleagues and your friends, your family members, that’s going to give you a broader sense of what they’re experiencing.
And then, finally, this last one is probably the least scientific of them all, but it’s worth noting. Now I’m going to ask you a question. I want you to think about it. Do you ever get the sense that things are just going too well? You feel like things have been going too well for too long, and something’s going to knock you back down to earth? That general sense of unease that you feel—that’s an indicator. You can be aware of it. And I always equate this to, I’m trying to think of which movie it was. I think it is the first one, the original, Meet the Parents (Universal Pictures, 2000). And now it’s actually, it’s the second one. I think that was Meet the Fockers (Universal Pictures, 2004). Anyway, you’ll remember it when I tell you this example. But in the opening scenes of this movie, when Greg is getting ready to travel to go have his parents meet Pam’s parents and all that good stuff—you remember it. In the opening scene, everything is going his way. For example, they ran out of a rental car, so they gave him an upgrade. He hit every green light on the way to the airport. They opened up a new security line for them when they were getting in the security line. His bag wouldn’t fit in the overhead compartment, so they stored it in the captain’s private area. Well, the captain’s private closet, I should say. But anyway, you get the sense that, oh man, there’s so many things going right for him, something’s gotta go wrong. And, of course, the story plays out like it did in the first one, and all this stuff happens and all that. But that general sense of unease, albeit not scientific, it can be real. And we need to be aware of that.
And so, you know, as we finish up here today, again, I want to just make a clear point—I’m not an economist. I’m a sales guy, I’m a business owner and I’m actively involved in researching this. And what I’m offering you is just a few things to consider, a few things to think about. And as you think about these things, prepare for them. You know, there’s always going to be a tough time on the horizon. It’s a fact of life. There’s always going to be another recession, but there’s always going to be an even longer period of growth. There’s always a longer period of growth that follows that recession. And in the book, I talk about this—how since the great depression, the average expansion has nearly tripled while the average downturn has nearly been cut in half. So we’re getting better at managing these things, but it doesn’t mean we shouldn’t prepare for them.
So take the time, prepare, look at some of the indicators in your industry and you be the judge. Again, nobody, with 100% certainty, can predict the next recession. They just can’t. But you can look at the indicators and choose for yourself.
Make it a big day.