What systems integrators, others should expect in the second half of 2023
An economic and labor update advises shifting performance indicators for the near future.
System integration insights
- Systems integrators and others were advised to manage for profitability rather than growth in the immediate future by Alex Chausovsky of Miller Resource Group.
- While a recession is projected to happen in 2024, it will be different than others because it will still have full employment and will be overall mild.
An “Economic and Labor Update” presented by Alex Chausovsky of Miller Resource Group was one of the highlights at the recent CSIA Executive Conference 2023, held May 15 to 19 in New Orleans.
Chausovsky’s overall message was while the year 2022 brought some bad news, including rising interest and inflation rates, it was no time to panic. Nevertheless, with a mild recession looming, the systems integrators and others in the audience were advised to manage for profitability rather than growth in the immediate future.
Amidst a global economy estimated by the Visual Capitalists website at $104 trillion, the total U.S. economy was estimated at $35.7 trillion and that of China at $19.9 trillion, Chausovsky said.
Current-dollar U.S. gross domestic product (GDP) increased 9.2%, or $2.15 trillion, in 2022 to a level of $25.46 trillion, compared with an increase of 10.7 percent, or $2.25 trillion, in 2021, according to the U.S. Bureau of Economic Analysis.
Chausovsky noted, however, the rate of GDP increase has slowed. “The last six quarters have been close to recession,” he said. “This has impacted imports, led to stocking changes, lower inventory goals and slowed growth, while remaining positive overall.”
Nearly 18% of GDP comes from gross private domestic investment as opposed to personal consumption or government spending. The last several years have seen unprecedented growth in retail sales, which isn’t proving sustainable.
Industrial production remains at its highest rate since 2019, and despite a slowdown in new orders, remains 2.5% over last year. “The propensity is for recession in early 2024. It will be mild and last about six months. It’s challenging to focus on profitability when so much growth has taken place. Others say they still need to raise prices,” Chausovsky said. (See sidebar 1)
In prognosticating on the business cycle, economists make use of leading indicators that presage larger changes. Chausovsky cited 1) total industry capacity utilization rate, 2) copper prices, and 3) the ISM Purchasing Managers Index as relevant leading indicators for the industrial sector.
With inflation slowing, including for energy, other sectors remaining flat and prices for core services starting to fall, Chausovsky predicted an inflation rate of 3.5 to 4%. He believes Federal Reserve-mandated interest rate hikes are over for the present.
Many of the discussions at the CSIA Leadership Conference event concerned skilled labor shortages and recruitment of young engineers, and most especially the phenomena of having to offer higher salaries to new employees while veteran employees are paid at a lower rate.
Chausovsky said a unique feature of the impending recession is the U.S. economy will experience at the same time full employment, i.e., an unemployment rate of less than 4%. Now, there are 1.7 million open professional and business services jobs unfilled and 9.6 million openings total.
While large tech companies are shedding jobs the manufacturing sector is looking to add workers. (See sidebar 2 for talent strategy tips.)
The first thing to consider for a systems integrator, said Chausovsky, is whether its employment offers are competitive compared to those of others. Moreover, are those offers fair in light of what established employees are paid?
Sidebar: Manage so as to make money
Things to consider when managing a business for profitability as opposed to growth:
Optimize cash flow
Narrow your focus
Look for smaller projects
Emphasize maintenance best practices
Build out your channel and system of partners
Discount prices for longer-term contracts.
Sidebar: Finding talent a challenge?
Some tips on how best to pursue a talent strategy in a time of labor shortages:
Allocate the resources needed for a comprehensive approach
Find partners and allies
Communicate and strive for efficiency
Ask for input, respond
Two interviews per candidate should be sufficient.