As we enter 2023, we wanted to take a look at what we at Blue Chip Partners think will be the biggest risks and threats that many businesses could be faced with as the year unfolds.
In our view, the biggest threat that companies and organizations will face in 2023 is persistent strength in the labor market. Overall inflation and its impact on company profitability has been the focal economic aspect of 2022. While goods inflation has shown signs of continued moderation, wage inflation remains robust as companies and organizations simply cannot find the talent they need to staff their businesses.
*All statistics above are sourced from the U.S. Bureau of Labor Statistics.
The bottom line is that continued disconnect between supply and demand in the labor market will cause significant profitability headwinds in 2023. If not managed appropriately, financial results for domestic firms have meaningful potential to surprise to the downside. Navigating this type of environment requires companies and organizations to walk a fine line between staffing up to innovate and fuel growth, and dynamically allocating resources appropriately to maintain efficiency and profitability.
The second biggest threat that companies and organizations will face in 2023 is a continued shift in consumer preferences. Over the last 2.5 years, individuals have purchased goods in droves, initially because no money was able to be spent on services due to pandemic lockdowns and later because of a cash windfall (less spending from staying home and stimulus checks). More recently, the tide has turned, and spending on goods is coming back down to Earth, while spending on services has generally expanded over the last 6 months.
The bottom line is that there are potential major headwinds coming in 2023 for manufacturing firms at large, specifically discretionary goods producers. With lower consumer appetite expected, companies and organizations will have to be creative in deploying resources to stoke growth in 2023. Further, as global growth broadly slows, manufacturing exporters are at risk of having demand collapse, which would have a significant impact on profitability in 2023.