September/October 2021 | Vol. 26 No. 5
by Fred Ashton, Senior, NEMA Economist
Over the last two decades, the United States has suffered two largely unexpected and unusually deep recessions.The sudden downturns left some businesses and investors in vulnerable financial situations. Many companies and individuals were forced into bankruptcies. Economic weakness lingered in the aftermath of the 2007-08 recession as businesses and households struggled to deleverage bloated debt portfolios amid diminished income flows.
The 2020 recession, resulting from business lockdowns to contain the spread of Covid-19, was short-lived and followed by a rapid recovery initially as businesses adjusted to the restrictions and later as a vaccination rollout helped suppress the spread of the virus. The strong recovery, enhanced by monetary easing and record fiscal stimulus, strained supply chains, catching many companies unprepared to meet a sudden demand surge.
The recent experience highlights the need for businesses to plan for possible economic downturns and unexpectedly strong rebounds. NEMA Business Information Services offers a unique portfolio of products unavailable elsewhere in the marketplace to help Member companies prepare for these rapidly changing tides.
Since its inception, NEMA has offered its product Sections a variety of survey programs. A key strength is that NEMA/BIS can bring competitors together to develop custom data collection programs that meet their mutual needs as part of an association. We work closely with data collection participants to design surveys with clearly defined product categories that yield summary data that support valuable product market analysis. Surveys include sales and order data, geographic distribution information, and end-market analysis.
Equipped with such unique data sets, NEMA/ BIS staff economists develop superior forecasting models for product shipments and industry trends, which are available exclusively to companies that have supplied the data composing the industry totals. As a result, participants in statistical programs can know the previous demand and the expected demand for a product. While helpful during periods where economic variables are consistent with historical data, such forecasts can become less reliable when financial shocks such as housing market meltdowns and pandemic-induced restrictions cause a steep demand contraction.
Aware of the limits of business forecasts, some businesses turn to economic scenarios to develop strategic contingency plans. NEMA/BIS has added scenario planning to its portfolio of product offerings and routinely incorporates them in economic presentations. These scenarios are developed using alternate plausible assumptions and an economic model to generate a range of economic outcomes. One current scenario shows how a recession could materialize if the Federal Reserve decides to use monetary policy to prevent or contain a persistent acceleration in inflation. A balanced analysis of detailed forecasts and possible alternate scenarios is available to help Members make strategic investment decisions. ei