COLUMN: Prepping For The Recession And The Opportunity

The Channel Company Founding Partner Robert Faletra believes the chances of a recession are real, and they present an opportunity for strategic solution providers that plan accordingly.

It may not feel like it, but the chances of a recession are real, they are rising, and if you wait long enough it will happen. While it seems unlikely, the signs are increasingly pointing to sooner rather than later. By that I mean within 12 to 15 months.

With the inflation rate bouncing in high single digits (7.9 percent) and understanding the government data is always lagging on this, we very well could be in low double digits.

It doesn’t feel great for workers who are demanding and receiving hefty raises but still struggling to stay even with the cost of living. This will result in a pullback in spending. And it’s consumer spending that has been driving this economy.

The unprecedented spending by the government has added to inflationary pressure. At this point, we have a GDP of $21 trillion and a deficit of more than $30.3 trillion, or $91,000 for every man, woman and child in the country. And the proposed new $5.8 trillion budget lines up against about $4 trillion in total tax receipts. Sound out of whack?

Throw in the dramatic increases in the costs of energy, food and housing and it’s no wonder the inflation rate is soaring.

The Federal Reserve of course is trying to manage and control inflation. And it is always doing so under pressure from the politicians on both sides of the aisle. It’s no wonder it is historically late in raising rates. Predicting the future, managing interest rates and getting it perfect is next to impossible.

More importantly, central banks worldwide have had to raise interest rates to combat inflation 16 times since the late 1970s and in 13 of those cases it resulted in recession. I’m old enough to remember the early 1980s when mortgage rates got as high as 18 percent following an inflation rate in 1979 of 13 percent. Then-Federal Reserve Chair Paul Volcker pushed interest rates up to get inflation under control and a recession ensued.

Some economists argue the central bank needs to raise interest rates to at or above the inflation rate as Volcker did to wrestle it to the ground. That may or may not be true, but it’s hard to imagine we are not going to see a much more aggressive tightening of fiscal policy by the Federal Reserve. It’s just hard to see those kinds of rates not forcing a recession.

Oh, and just to add some color, when has this all occurred with a ground war in Europe raging, oil prices at historic highs, a pandemic waning but still in play, and a schizophrenic stock market?

I can’t predict the future and I’m certainly not a trained economist, but while these numbers are a little scary, they also seemingly present a sales opportunity.

Customer spending on IT products and services is largely done to meet future opportunities and challenges.

In growth markets, the spending leans toward expanding the business and capturing new opportunities. In down markets, spending often gets harder to find for obvious reasons.

But in a transitionary market where we are potentially headed into a time of cost containment and efficiency, the sales pitch needs to adjust accordingly.

Strategic service providers are most successful when helping customers stay just in front of market changes and deploying technology that provides a competitive advantage.

No market, good, bad or indifferent, lasts forever and there is enough talk already of a potential recession to have customers focusing on efficiency and automation.

Outsourcing of noncore functions to you or other third parties you recommend is going to be better received as the market changes.

It may not be a bad idea to begin having precautionary conversations with customers or at the very least to prepare your own strategy as to how you will react if the market does in fact turn recessionary.