“Happy New Year” is a greeting, not a forecast. Business leaders will face great challenges in 2024, but some of the old problems will be reduced.
The economy is less likely to fall into recession in 2024 than I previously thought. A few quarters of slower growth won't hurt too much.
Interest rate trends are less uncertain. The next change will certainly be a rate cut, but there is uncertainty about the timing and magnitude of the rate decline. Companies that are particularly sensitive to interest rates, such as the real estate business, will be hurt as the Federal Reserve appears likely to cut rates quickly, then delay, and then apparently ease. If this happens, long-term bond interest rates will become unstable. Flexibility proves its worth.
Inflation has subsided. Don't be surprised if the bad news continues for a month or two. The trend is toward the Fed's 2% goal, even if it doesn't get there until 2025.
The labor market will remain tight. Hiring will be less difficult in 2023, much to the relief of business leaders, but the boss-friendly environment of the past few decades will not return. The Census Bureau's latest population projections show that the decade from 2020 to 2030 will see the slowest growth in the working-age population since the Civil War.
People looking for work will generally find many opportunities. Although there are some professions that are not doing so well right now, workers generally have an advantage.
The key to addressing this demographic truth is increasing productivity. Adding more stress to your employees won't help, but with better tools, training, and management, you can increase output per employee. Better manager training not only increases productivity but also increases employee retention. Additionally, anything that increases retention rates will encourage recruitment. Check out my resources for dealing with a tight labor market.
Artificial intelligence will bring both opportunities and risks to business leaders in the new year. Opportunities are wide-ranging as new tools improve the quality of work and shorten delivery times for many. Risk comes from AI illusions, resources devoted to applications that don't work, and time spent learning new tools. Although the risks are real, the potential benefits are too great to ignore. (Read my article on AI and economics.)
An urgent action is to encourage trial-and-error testing of AI-based tools, keeping in mind the “error” part of the concept. Employees at any company need to learn more about the tools, as learning comes from failure as well as success.
Business models will change as a result of underappreciated AI. As the business environment changes, some businesses thrive, others decline, and those that survive evolve. This is a good brainstorming exercise for a business planning retreat.
In 2021, we didn't know how good it would be. Russia had not yet invaded Ukraine. The Middle East was relatively calm. The Red Sea provided a safe passage to the Mediterranean Sea. Although China brandished its sword over Taiwan, it did not dare to challenge the United States. Although Guyana was growing rapidly thanks to new oil production, it had not yet become a target for Venezuela.
When I've been asked, “What causes your economic forecasts to be off?” I have always answered simply, international conflicts. Business leaders need to reconsider their direct and indirect dependence on foreign operations. Direct dependence simply reflects markets and input sources. Indirect dependence goes a step further and asks which markets are important to the direct market. And which suppliers are important to our direct suppliers?
Supply chains are already being assessed for China-specific as well as general risks, and this effort should continue. Incremental changes are usually the best strategy and are continually monitored as reshoring or nearshoring opportunities improve.
Corporate speech and public opinion
Companies settled for bland, feel-good commentary on current events until 2023 shattered their complacency. Bud Light has fallen from its top spot on the beer sales chart after conservatives opposed Anheuser-Busch's promotion featuring a transgender political activist. Recently, the university was accused of hypocrisy, banning speech deemed hateful but condoning anti-Semitism.
Company leaders should set clear policies regarding employee communications and the statements the company will or will not make regarding current events. Unless a company wants to make politics part of its brand, a winning strategy is probably to say as little as possible about news that doesn't directly relate to the business.
Non-Objection: Ignore the election
Yes, there will be a presidential election in 2024. And candidates will say things that encourage and infuriate different people. But worrying and expecting about elections is a loser's game. First, anything any candidate says will be misrepresented by the other side. Second, candidates make promises that they are unlikely to keep. Third, elected leaders would be unable to carry out most campaign promises, even those that are within their authority. For business leaders, the election is a distraction, and other challenges that businesses will face this year require greater attention.