The Soft Expansion for 2023

Well, we’ve heard from many sources about the economic outlook for the balance of 2023, and the responses bounce between a soft landing and a hard landing. We have a different scenario in mind that seems to be developing: a soft expansion, which means GDP growth that will annualize out to about 1% for the year. Next year, it looks like expansion is around 1.5% for 2024. As any economist will interject, there is always an ‘unless’ in such a forecast: unless the Fed increases rates, unless inflation climbs so the Fed increases rates, unless some country attacks some other country, unless a few bank insolvencies turn into many more bank insolvencies, and so on. But as we complete the first half of 2023, expansion remains low, and recession looms as less likely.

In addition, it depends on what sector of the economy your business operates within. Automotive and aerospace are doing well. Many sectors expanded inventory as they adjusted to the supply chain shock, but now they have too much on the shelf. Compounding that issue is that their customers have too much on their shelves, so new orders are soft. That means a subdued period of purchasing while those inventories are sold into a weakened demand market. So, demand will be soft, but expansion will prevail because consumers still have jobs and purchasing power. Thus, a soft expansion.

The biggest worry looking forward is the federal government’s spend. To stimulate the U.S. economy as the country went through a pandemic, the federal government pumped hundreds of billions of dollars into the economy. The result was an overheated economy. At the same time that the Fed is trying to cool the economy with interest rate hikes, the federal government continues to spend at a pace that creates inflation. Being out-of-sync with one another may become the ‘unless’ scenario that flips low expansion upside down.

Another concern is the number and implementation costs of new regulations that saddle manufacturers with unanticipated outlays. Reallocating money to comply with new regulations means some areas of the business will take a hit. For most manufacturers who have trimmed every cost and expense, the last remaining places for funds are wages and prices. The cost of compliance with new regulations is passed on to purchases at higher prices and may be borne by employees, in part, through reductions in force. Wages are rarely reduced by some percentage across the employee base to reduce wage costs. Instead, a number of employees lose their jobs so the company can pay for regulation implementation. At present, since finding, hiring, and training skilled employees is difficult, employers are reluctant to reduce their labor force.

This is our view of 2023. What is yours? Is your sector under serious stress, seeing some mild expansion or even strong growth? Let us know. Comments from our readers are always welcome because all of manufacturing is in this economy together. And as you may know, in addition to being the Publisher of this free digital ezine, I am the host of the Manufacturing Talk Radio Podcast and the President of All Metals & Forge Group, a manufacturer of open die forgings and seamless rolled rings. We love to talk to other manufacturers and encourage you to comment on conditions in your industry sector.

Whether you contribute an article or send a letter to the editor that we can publish, your experiences and voice are important in the ebb and flow of manufacturing. Share your thoughts with others in this digital, dynamic, and diverse industry through Manufacturing Outlook. We look forward to your input. n

Lewis A. Weiss, Publisher

Contact laweiss@mfgtalkradio.com for comments, suggestions and ideas and guest requests for MFGTALKRADIO.COM podcast or any of our podcasts.