2024 Economic Outlook
From left to right: Danny Bachman (Deloitte), Amanda Mathis (Bridgestone), and Lynn Friedrichs (Deloitte)
The CFO Forum gathered on Wednesday, October 4 to discuss a 2024 Economic Outlook. We were joined by Amanda Mathis, Bridgestone Americas CFO, and Danny Bachman, Deloitte’s US Economic Forecaster. Our moderator Lynn Friedrichs, Deloitte’s Tennessee Market Leader and Partner kicked us off.
What does the economic forecast look like today?
Danny: The job market remains tight. Growth is slowing but not going downhill. The baseline forecast is that the economy will reach a soft landing, inflation is coming down, and over the next 5 years enter long-term growth mode. Will be lower but still growth. There are many scenarios. From a business planning point of view, the relatively high possibility of recession caused by financial problems is 20%. We also have an Inflation scenario with risks and problems, but short-term outlook looks positive.
What type of global considerations are being discussed?
Danny: Everyone wants to know what’s going on in the U.S. and the Eurozone is in a funk. China is moving out from being an economic driver over time and currently has a lot of financial problems.
How are you planning for 2024 at Bridgestone?
Amanda: We look at a lot of economic data. It’s all about scenario planning. Looking at ranges has a huge impact on short-term and long-term planning. Overall, 2023 has been a difficult year to predict key drivers. It’s essentially the pandemic hangover. When looking at it from an industry perspective, trucking has been in a freight recession. Harder to predict than in previous years. Scenario plans drive capital allocation decisions.
What are some indicators for people to be watching?
Danny: Hard to predict, basically impossible. Can’t predict recessions because they are events. The economy is vulnerable, but we are certainly looking at employment data every month. Labor growth is going to slow because the labor force is growing slow. Only 300 jobs are created a month if it turns negative for more than a month – will start to get worried. Major economic indicators, durable goods shipments, and industrial production incomes are the best way to track the economy.
What do you think are some of the big risks/opportunities as you look to 2024?
Amanda: Miles Driven is an indicator. Tires are resilient. When we move beyond the tire business – sustainable solutions are part of our larger strategy. We are very cognizant of demand. How do we think about rebound? Consumer side – where sentiment is? It’s at an all-time low. The market is still resilient, but cognizant of raw materials and the inflation cycle. We must figure out how much “pricing” we can pass on to the customer and how long it will stick.
How do you view consumer sentiment?
Danny: I work with many retail industry teams. Sentiment is there but is a huge issue because it’s behaving so oddly. Jobs and income matter. If the job market is tight, this drives consumer spending. If people don’t have jobs they won’t spend. When the economy is at full employment, and people can go get another job if they want, this drives consumer spending.
What is your role as a Finance Leader in the board room?
Amanda: The board room shifted post pandemic, and they are more focused on scenarios, outlook, and mitigating risk. We have more conversations on potential shocks and risks. Our business is not just U.S. based, it’s global. For example, there is huge unrest in Argentina, and how are we thinking about that and economic uncertainty outside of the U.S. Honestly, at the board level, we spend more time talking about culture, and ways of working, and our sustainability agenda.
How has the current labor market and finance world impacted your department?
Amanda: It’s certainly a tighter market and takes longer to recruit but we are luckily sitting in Nashville. From the financial side, there is no dramatic change. Earlier in the pandemic, junior ranks turnover was much higher. From an overall talent perspective, we felt it in the manufacturing field and retail but are starting to see more stabilization.
Danny: The labor market of the future is not the labor market of the past. Before 2016, the U.S. economy has run at less than 2/3rd employment with surplus labor. This won’t be the future. The growth of our working age population has slowed. On top of that, we can push the unemployment rate lower. The entire labor market has changed and lower less-skilled end. Companies that pivot with talent will be ok. Many companies have resume screens. Before 2015, they had plenty of candidates, now we must consider labor gaps, women re-entering the workforce, etc. Employers must be more flexible than in the past.
How is Technology and AI impacting the finance department?
Amanda: AI has not had a huge impact on the finance organization yet, but there is likely more that we can do. We need to formulate an overall strategy for AI, ChatGPT, etc. We are in the early stages but know the impact is coming.
Lynn: As general counsels, we often discuss how to govern AI without being experts. We need to understand it enough to determine how it will impact us from an economic and talent perspective and develop proper processes around it.
Danny: 10 years ago, they promised self-driving cars. It is taking a much longer time to implement technology and GenAI will be similar. We are all living with AI today and it’s a huge help, but GenAI will take a long time to implement. We must study it and work on it - It’s a challenge.
If you could give yourself (and the audience) advice what are key items to consider?
Amanda: Explore many different perspectives, ideas, ideations on outlooks and learn how to be more informed. Scenarios are key and you must be flexible. Assume that you aren’t always going to be right and have multiple plans built out - Quick, Agile, Ready to Flex! Our business partners are certainly more optimistic, but we must balance force. Be Aggressive but prepared and balanced.
Q&A:
Are you seeing a Hybrid Trend in the Finance Department?
Amanda: Our intention is to remain hybrid to allow our finance team to have flexibility. We need personal connections and training with new employees. A couple of days a week in the office has helped build the culture.
Monetary versus Fiscal Policy - Do we just need to print more money. Supply vs demand etc.?
Danny: In the short term, interest rates will re-normalize. Suppression of long-term interest rates. There's an argument that interest rates will fall, but I think there's going to be a lot of demand for capital in the next 10 years - some of it is automation as labor becomes more expensive and figuring out new technology. There's also going to be an enormous demand for capital for climate remediation so those things are likely to keep interest rates at a higher level and anyone who deals with balance sheets should be aware of that.
Have you experienced any other noticeable post pandemic Changes?
Amanda: On the consumer side we saw spending and savings coming through the pandemic, but you start to see that savings dwindle. When times are hard you might see more trade downs on quality of tire. People were spending more for household goods during the pandemic and now you see a lot more travel spend with miles driven etc. I think overall the consumer has been resilient.
Danny: There's a dramatic drop in consumer spending in the first quarter and second quarter of 2020 and then purchases for consumer durables shot through the roof because everyone was buying home gym equipment. The thing about home durable goods is they must last more than three years. Which means that all these people bought dumbbells, and once you buy the dumbbells you don't buy them anymore. So, if you are a manufacturer, you're facing this rotation of consumer spending away from durable goods and into more services. If you're in durable goods manufacturing, you probably had a very good time for a couple of years but you're probably going to have some period of real weakness now.
Any final thoughts?
Danny: There are some long-term challenges that the US economy faces that will likely impact your businesses. One of them is the deficit and debt so that's on the fiscal side. It is a long-term challenge and I'm going to tell you the secret that everyone in Washington knows (because I've heard three different CEO directors mention it.) The long-term deficit and scary numbers that you see is entirely caused by federal health care spending. There's a little bit of Social Security but Social Security is tweakable. We can fix that without too much trouble really, but the healthcare spending is what's driving it. When you hear people talk about how they're going to solve the deficit problem, if they're not talking about healthcare, they're not serious and that's a challenge for us because we have an ageing population. The other long-term problem is climate change remediation.