By Adam Hill, President
The Scarbrough Group
Recession fears have grown in recent months after a recent slowing of the U.S. While the economy is certainly changing, key supply chain indicators show that we are more likely headed toward a post-pandemic correction than a full recession. Small and medium-sized businesses are better suited for this economic adjustment compared to larger actors, toting inventory agility and flexibility.
Recession Woes? More Likely a Natural Course Adjustment
I cannot speak directly of recession in its strictest definition – I will leave that to the economists. What I can speak to are trade and American import activity. Many have pointed to a downturn in imports as a sign of an impending recession. But supply chain indicators paint a more complicated picture.
Are imports down from 2021 & 2022? Yes. But compare them to imports in 2019, and we see that they are actually up from pre-pandemic levels. This indicates that our economy may not be heading down into a trench but is more likely reverting to a mean. The correction comes as no surprise after a period of intense disruption and anomalous circumstances.
Specifically, companies are attempting to correct overfilled inventories by reducing their orders overseas.
The pandemic era drove a huge period for shipping. Demand for consumer goods spiked while the supply chain faltered. As a result, the just-in-time inventory model crumbled. Shippers compensated, ordering in bulk to help keep items on store shelves and stocked in distribution centers.
The opposite is trending now, with companies drawing down orders in response to vast overstocking and diminishing warehouse capacity. Imports and freight rates are shrinking accordingly but they have not bottomed out into a true slump. Instead, we’re seeing more normalized conditions.
SMEs Who Stay Nimble, Deliberate Have Advantage
Small to medium-sized enterprises have an advantage over larger companies with their ability to stay nimble amid a shifting economic landscape. But it’s a double-edged sword: having agility allows for quick decision-making but can also lead to moving too fast. The key to thriving during this course correction is balancing inventory agility with a deliberate, focused strategy.
This will not look the same for all SME importers. While some manage to quickly reduce orders and draw down inventories to levels closer to 2019, I have personally spoken to others who intend to keep their inventories as full as possible for the foreseeable future.
This balancing act may provide the resilience that small and medium-sized businesses need as the economy adjusts back to a semblance of pre-pandemic normality.
Adam Hill, President
The Scarbrough Group