Alex Chausovsky: How the Latest Economic Data Impacts Industrial Businesses

Speaker A: Welcome to the Rivergate Marketing Podcast. In this episode, Alex Shoshofsky, director of analytics and consulting at Bundy Group, discusses the current state of the US economy in the second half of 2025. He advises business leaders to focus on profit growth, leverage tax incentives like accelerated depreciation and R and D credits, and and enhance communication with supply chain partners. Despite challenges, Shasofsky remains optimistic about the potential for businesses to adapt and thrive. Hi, welcome to the podcast. Would you like to introduce yourself?

Speaker B: Yes. Thanks so much, Christine, for having me. My name is Alex Czasofsky. I'm the director of analytics and consulting at Bundy Group, which is a boutique investment bank out of Charlotte, North Carolina. And we are a proud CSIA member. And I have had the privilege of speaking at CSA conferences for many, many years. So very familiar with the control system integration community and all the things that they care about.

Speaker A: You're very popular at those conferences. I have to say, every time I do a roundup set of podcast interviews at those, you're always mentioned, like virtually by every single person I talk to. So.

Speaker B: Well, thank you. I care passionately about the community and I try to do everything I can to put myself in their shoes, to think about the world from their perspective and to help them make better decisions using hopefully good quality, reliable data. That's where I specialize. So I'm glad that it's having the desired effect.

Speaker A: Yes, we need more of that good quality data. It helps everybody see around the corner a little bit into the future. All right, well, to start us off, what's your high level take on the current state of the US economy as we move through the second half of 2025?

Speaker B: Yeah, I'll say that with all things considered, you know, with the tumult that we've seen since the inauguration of President Trump's second term, with all of the uncertainty around the trade protectionism and tariffs and around tax policy and the one big beautiful Bill act, you know, we're pretty well positioned here. You know, a little bit more than halfway through 2025, we've had two effectively solid performances out of GDP. Now, technically speaking, if you look, look at the data points, you know, first quarter was a negative 0.5% annualized growth rate, but that was, uh, kind of a misleading number because it was largely negative because we imported a lot more stuff that we exported during that quarter to try to get ahead of the tariffs. And so the way that GDP numbers are calculated, those imports count against us, but certainly from the amount of economic activity that was happening. We did not have a recessionary quarter q2 we had kind of a reversal of some of those trends where the imports were really down because of Liberation Day, because of the threat of very high reciprocal tariffs. Companies were really pumping the brakes and building up inventory and they wanted to be a little bit more conservative. So we had a reversal in that trend. But business investment kind of lifted things up during Q2. Consumer spending held up pretty well and so we had an annualized 3% growth rate during that quarter. Generally speaking, I would say first half was pretty good, especially when you look at it from the perspective of a business cycle. So, uh, I think it's important to point out to listeners that the way that the public data from the government lists GDP doesn't always make sense to track when you're a business leader or a decision maker. So what they do is first of all they compare it on a quarter to quarter basis. That means that they say Q2 was this kind of compared to Q1. When you're a business leader, you want to know how Q2 of this year did compared to Q2 of last year. You're more in a year over year comparison business. Not so for the government. Uh, the other element is they have uh, basically four different components. There's consumer spending, there is business investment, there is government spending. And then there's this trade balance which is the difference between imports and exports. And oftentimes because we as a nation import a lot more stuff than we export, that trade balance acts as a kind of anchor. It's a, it's a big negative hit to the overall number. Once again, if you look at the year over year data, that removes some of that seasonality, some of that inconsistency in trade, and gives you a more accurate performance metric. So if done that way, then GDP was basically growing at 2% year over year both in Q1 and Q2, which is very much in line with the historic trend and shows that the economy has been resilient to a lot of the uncertainty and the noise around policy in the first half of the year. Can we continue that way for the second half and beyond? I think that's still to be answered, but certainly we're seeing some signs that things are slowing down. And in many cases there are pockets of negativity. You know, if you look at manufacturing overall, really starting to feel the impact of tariffs and uh, the protectionism, um, construction is starting to feel it in a major way. You know, we still do have areas of positivity, the consumer being kind of a resilient, you know, we continue to spend money living our lives despite all of the things that are going on. But there are certainly kind of cracks in the armor of the economy starting to show because it is a heavy load to lift with all this policy uncertainty. So I hope that answers your first question.

Speaker A: Absolutely. So what are some of the things that are causing that?

Speaker B: Well, there's a couple of key elements that I think the business community needs to pay very, very close attention to. One of those is inflation. Right. We've heard from the beginning of the year that tariffs are bound to drive inflationary pressure, because unlike what the administration wants us to think, it is not other countries that are paying for those tariffs. It is American companies paying the tariff when they take possession of, of goods coming through Customs and Border Protection at the various ports of entry. So it is US Companies that are incurring the additional costs. There's a lot of social media posts about actual bills, uh, of receipt, and they have a breakout for the tariff component. And in many cases, those costs are in the tens, if not hundreds of thousands of dollars, depending on the industry. So these inflationary pressures related to the protectionism are now starting to show up in the economic data. Whereas before, in the first half of the year, we saw inflation kind of pulling back closer to the Fed's 2% target, now it's starting to get farther away from it. Whether you look at the consumer price index, which is the way that you and I as individual people feel inflation, or if you look at the producer Price Index, which is the way that businesses feel inflation, the latest data that we saw for July had both of them tick up to 3% or more. And that's really showing that we're not making the kind of progress on the inflationary front, uh, that the Fed would like us to make. And of course, the reason why all of that is so important, in addition to the fact that we don't want to pay higher prices, is the fact that the Fed has this dual mandate. They cannot continue to lower interest rates until they feel like they have inflation soundly under control. And the second part of that mandate being making sure that the labor market remains relatively healthy and vibrant. So I would say that the inflationary element right now is making it very difficult for Chairman Powell and the rest of the Federal Reserve Board to say, yes, we feel comfortable in lowering interest rates from the elevated level that it is at, uh, today to something that is more neutral. So for some context here, interest rate policy, especially on the federal funds rate, which Is the interest rate that they manipulate at the Fed has to do with kind of are you in restrictive territory? Meaning is it so high that it actually prevents more business from occurring? Are you in neutral territory to where it's not farming nor boosting business? Or are you in an accommodative territory? Right. So during periods of recession, the Fed wants to lower interest rates to be accommodative, to encourage people to borrow money and invest and, and spend. Right now at, ah, being north of 4% on the federal funds rate, we're definitely still in that restrictive territory. That means that, you know, big projects that are based on borrowing and then investing that money into building new buildings, buying that new piece of equipment or machinery, you know, anything that's capex intensive is being hampered by the fact that we have this high interest rate environment. And of course, system integrators see that on the front lines. A lot of the projects are still on hold from earlier in the year. Some of them are now starting talking about maybe cancellation because the cost benefit analysis is just not there. So as we head into the fall months, the Fed has a really difficult decision. Do they say we're going to ignore the fact that inflation is rising for now and focus more on the data from the labor market, which is showing a weakening? Especially in the last three months, that May, June, July timeframe, we saw a much weaker performance from the labor market than previously? Or do we say we don't want to see the economy tip over into recession and so we need to lower those interest rates? And then of course, the threat with that is inflation surges as borrowing costs become cheaper. And they don't want that. And the American public certainly doesn't want that. Because as people, we are much more sensitive to inflation than we are to high interest rates. Right? I mean, when you go to borrow money as an individual, it's for a mortgage, right? It's for a car note, it's for a personal loan. You don't deal with that stuff every single day. But when you go to the grocery store and you see the price of, you know, deli meat or, you know, your staple goods continuing to rise pretty dramatically, and you're seeing that on your weekly grocery bill, that is something that is very evident in your face. And so most people hate inflation way more than they hate high interest rates for businesses. Unfortunately, that's not as simple of a, uh, equation. The high interest rates are preventative from these big projects moving forward. So it's a complicated picture, but those are the things that I'm paying attention to right now as we look out to the second half of the year to determine can we still eke out some solid growth this year despite everything that's going on, or are we continuing down the path to weaker and weaker growth, eventually potentially turning into, you know, either flat performance, no growth, or what's called stagflation, which is very weak growth and, um, inflationary pressure, or an outright recession? My personal opinion at this point is I don't see the evidence of a recession forming in the near term. But the threat of stagflation, which is very weak growth powered primarily by price increases, which is not the way that you want to grow revenue anyway, is a very, very high probability for the latter part of the third quarter and for the fourth quarter of 2025. I think it has to be a recognition when it comes to planning that, you know, we had the passage, for example. Let me talk about something positive. So the one big beautiful bill act that was signed into law by President Trump on July 4th had a couple of really important provisions for businesses, right? It had accelerated depreciation. So now any capital expense for the business is able to be written off at 100% the first year that you put that into service, going back all the way to, uh, January 20th and beyond, right, With President Trump's being sworn into office. The other element is R and D credits are now tax deductible as well, whereas for many years they were not. And so there are things that are being done on the policy level that are stimulative to business investment and to big projects moving forward. But the uncertainty, the volatility around the executive order approach to tariffs and having things change overnight makes it really difficult for that to be enough in and of itself to kind of boost economic activity. You'll look at this weekend as an example. On Friday, the administration announced that they added something like 300 new items to the section 232 tariff. So they're no longer exempt from under USMCA, uh, agreement. And these are all steel, aluminum, copper derivatives that are, you know, so many more product categories are now all of a sudden susceptible to a 50% tariff that wasn't there, you know, the week before. And so the ability to adapt to this is very, very much hampered by the unknowing what's going to happen tomorrow. How will President Trump feel about this particular topic or that particular topic, and is he going to act unilaterally? Obviously, all of these executive orders are being done without the approval of Congress. This is just done by President Trump himself. And in some cases I can see the logic behind them, in other cases, not so much. So the rationale and your political beliefs obviously go into whether you think this is a good idea or not a good idea. But what we're seeing, at least for now in the data, I can't say that it's justified in terms of what we're seeing roll out on the policy side, the idea of we want to protect US Manufacturing and encourage it to thrive. Right. I mean, using this example of the latest tariffs that I just mentioned on the steel and aluminum side, steel and aluminum production as an industry employs somewhere around 80,000 people in the United States. So you're protecting those guys from foreign imports, but the industries down the stream from that, fabricated metal production, machinery manufacturing, transportation equipment manufacturing. Those three alone account for 4 million jobs. And those are all being hurt by the tariffs that are now in place because everything is now getting that much more expensive. So when you're doing this cost benefit analysis, I think you have to be very transparent to say, can I see the positive impact not only in the wishful thinking, but rather in the data that I used to judge the validity of something for the decision making process? So that's my take on it right now, is I'm cautioning the companies that I work with and the clients that I speak to to temper expectations for the second half of the year in terms of growth. But I also remind them that we enter 2025 with some momentum. And so I think if this instability, this uncertainty comes to an end, if we get past all of these different tariff changes, even if companies have to adapt to a higher pricing environment, they'll be able to do so and, and then move forward. But it's that volatility that right now is hampering most companies from being optimistic about the future.

Speaker A: Sure. Getting a curveball like that just overnight throws everything into chaos. I'm, um, sure, yeah.

Speaker B: I follow a lot of people in the shipping and logistics arena online, especially on LinkedIn, and they were all talking about how, you know, a, it was a miserable weekend for them because they had to try to adapt to all of this new legislation. But they were uh, actually interestingly talking about how, like, the timing of when that decision was dropped at 5pm on a Friday afternoon means that the administration is somewhat out of touch with the understanding of the implications of all of these actions on the people that they're very much trying to protect and serve. And so there was a lot of kind of grumbling around Well, I guess I'm working both days this weekend in order to try to figure out what this means to my company and to my business. And they were very unhappy about the whole thing, understandably.

Speaker A: Yes. Just circling back to one thing you mentioned, the R and D tax credit. Is this something that can benefit system integrators as they can perhaps write off their, uh, development costs?

Speaker B: Yeah, I think to some extent. And you know, I would highly recommend that anyone listening really get with a tax professional. Uh, because the legislation is very complex. There are very specific ways that you can and cannot use it. But I think as a broader, uh, idea. Yes, there should be ways for system integrators to tap in to some of the benefits. Perhaps not as much on the R and D side because they're not developing new equipment themselves unless they're designing actual new systems that are going into operation. If they're buying in a bunch of different components and assembling them, I wouldn't count that in the R and D space. Right. It's only if you're designing a piece of equipment or machinery that that's novel. Then you can say, okay, that's R and D. But certainly on the accelerated depreciation, if you're buying the equipment and installing it for the customer and then just charging a specific fee, then there's some benefits that are potentially available to you with that. So definitely go to a tax professional. Um, there are several companies that I know, ah, are really good at this kind of thing. I'm just not a tax expert myself to where I couldn't say, yes, in this case you can. No, in this case you can't. But the potential to do so is definitely there.

Speaker A: Let's see, the next one's about the labor market. Did you cover everything you wanted to cover?

Speaker B: Well, um, I think there's some, some contextual details that should be mentioned here in terms of what we saw in those three months of weakness. Right. So the latest data point in July we saw that the economy only added about 70,000. I think the number was 73,000 jobs overall. That was highly concentrated in the healthcare and the state and local government sectors. If you look at manufacturing, if you look at professional business services, if you look at construction, those sectors lost jobs. And uh, as a general blanket statement, I would say outside of healthcare and state and local government, it's been really, really kind of more of a hold steady labor market rather than a growing labor market. So even though we have been adding jobs every single month, it has not been widespread in terms of the different sectors that it's uh, the other element that's worth mentioning here is, and the reason why the Bureau of Labor Statistics chief lost their job was because we had two months of major revisions. So the month of May and June both got revised down by a total of something like 258,000 jobs. So, you know, prior to that we thought we added 100,000 or more jobs every one of those months. The revised data says no, is actually closer to 15,000amonth. So that's uh, not only in terms of scale, a huge revision, but it really undermines credibility of the system as a whole. Like how can I make decisions based on this data if a few months later you're now revising it by this level of margin of error? There's a lot of reasons why they did the revision the way that they did. Uh, a lot of it has to do with kind of how the data is reported and the trade off between being timely and being accurate. So, you know, when they go to collect this data through a survey approach in the first month, the response rate is actually quite low because it takes most companies several months to process all of the information and to report the accurate figures. So they're saying, well, you're asking us to deliver this data monthly, but we don't really get an accurate count until two or three months after the fact. So what would you like us to do do? And the preference so far of industry has been we prefer more timely data rather than very accurate data. But when you have a revision of the scale, people say, well, the accuracy does matter to some degree. Right? You can't just be like off by a quarter of a million jobs and have that be a non issue. So I do think that the president overreacted in terms of firing the Bureau of Labor Statistics chief. I don't think there was a political agenda in adjusting those numbers, but certainly it does facilitate the discussion around how credible and how dependable are the data sources that we use, especially ones that are provided by the federal government, or do we need to develop more proprietary? More publicly available data is great because it's free, it's regularly available, but it does have flaws. Proprietary data is not free, but it has much more rigorous, I think, expectations in terms of its validity because you're paying for it. So there's trade offs involved in all of that. Um, but undermining the credibility of the system itself, I think is a, uh, really dangerous precedent to set because the US has enjoyed for many decades having one of the best quantitative reporting structures in the world. Our companies are the most transparent in terms of the requirements from public sector for quarterly filings and for tax filings and annual statements and all of that kind of stuff. We don't want to start like doubting the credibility of the system because then decision making is much harder if you can't trust the data that you're using.

Speaker A: I can see why. Yes.

Speaker B: Yeah.

Speaker A: How are current interest rates shaping business investment and spending decisions, especially in the industrial and manufacturing sectors?

Speaker B: As I mentioned earlier, you know, the overall interest rate environment is still fair, fairly prohibitive in terms of, if you are considering doing a project, whether it's building a new building or investing into a new piece of equipment or machinery, that's hundreds of thousands or a couple of million dollars, you're likely going to need to borrow money in order to see that project through. And so the ROI calculation, the return on asset or the return on your investment, the higher the cost of borrowing, the more difficult it is to justify. Right. You would need to an aggressively high return on such an investment in order to justify borrowing costs. Right now, uh, business borrowing costs range from high single digits to low double digits. And that makes it a lot more difficult to justify a lot of the projects that were being considered for 2025. So I would say what we need to see is the Fed to lower those rates in order to open up the floodgates of the projects that are currently on hold. But as I mentioned earlier, also the hesitation on the Fed's part to do that is if we lower interest rates, then that will kind of remove some of the cap on inflation. And so they're trying to figure out the pathway through this very difficult set of. You know, they're caught between a rock and a hard place on this thing. And either way, they could potentially misstep if they wait too long and the economy goes into recession, they're going to be blamed for waiting too long. If they do go ahead and cut rates right now, but then we have a surge in inflation to 5, 6, 7%, anything resembling what we saw in 21 and 22, they're going to get lit up for being too accommodative. Right. So it's a very, very difficult position for them to have been in. And I think it goes to an earlier position that a lot of people had, which is they probably waited too long to start cutting, cutting rates when we had the proper momentum of inflation going down over time, rather than what we're seeing right now, which is it's increasing over time. They should have acted more earlier to lower the borrowing costs before. But doing so now in this environment of increasing inflationary pressure is a really dangerous thing to do.

Speaker A: That does sound like a rock and a hard place to be in.

Speaker B: It does, yes, for sure. I'm glad I'm not Chairman Powell, that's for sure.

Speaker A: Consumer spending has been a key driver. Are we seeing signs of resilience or is there a slowdown taking shape?

Speaker B: It's been really remarkable to watch, and logically I think it makes sense. Right. So when I think about consumer spending, uh, I think we are a society, uh, that is based on consumption. Western societies, uh, are you work hard and you enjoy the fruits of your labor and you go out and you spend and you live your life. So, you know, travel is a good example of this. We have not seen any pullback in travel. TSA checkpoint numbers are slightly up this year relative to before. If we look at the retail environment in general, one of the series that I use to track that is retail, uh, trade of food and services. It's a pretty comprehensive data series, comprises about $9 trillion altogether of economic activity. That's still up about 3.3% year over year. Now, some of that because it's a dollar denominated series, some of that is because prices are higher, right? So revenue is just unit times the cost of the unit, and so price increases are pushing that revenue number higher. But as long as the retail trade data remains positive, that shows that the consumer is still out there spending money. And I'll link this back to the labor market. We talked about the weakening earlier in terms of the additional job gains, but I think what we haven't seen are any substantial job losses, meaning there hasn't been an uptick in layoffs. So that's when I would start to get worried about the retail environment starting to weaken dramatically is if people start losing their jobs, then they start to change their behavior substantially by cutting back in spending, by shifting only to necessities, they're really going to be kind of closing those purse strings. So I would say that as long as the layoff numbers remain subdued, which they have all the way through the end of July, there's no reason to think that all of a sudden we're going to start seeing these major layoffs by American companies, then I think it's fair to say that the retail environment, which is 2/3 of GDP overall, will remain relatively stable. So that's why I don't buy into this idea that we're facing an imminent recessionary environment. But I do think that we're going to have weak growth largely driven by these price increases on the back of rising inflation. And that's not a great environment to be in either, given that so much of this is self induced. Right. And I'll go back to the comment that I referenced earlier, which is if I look at the business cycle tendency of both the consumer side of the economy and of the B2B side, the business investment side, after the November 2024 presidential election, both of them started to surge and were really bringing in a lot of momentum into 2025 that was very positive. People were looking forward to a more business friendly environment, less regulation, kind of like, let's go, let's get this done after a couple of years, especially in that industrial space of kind of sideways movement, of malaise, of very weak growth. So 2025 was positioning itself to be a much better year, economically speaking than 2024. And then when we had this policy uncertainty seep in, starting in around February or March and certainly culminating during that Liberation Day announcement in early April, um, that's when we saw the trend to the upside break and start to head kind of sideways with a slight propensity for downside pressure. So the growth is still positive, but it's not accelerating anymore, it's now decelerating. And that's an important phase of the cycle that shows that we're no longer, you know, really ramping up that momentum, but that momentum is actually slowly dying off. So, um, that's why I am falling into that, ah, stagflation camp of weak growth. Plus some inflation is likely to demarcate the second half of the year without being a recession.

Speaker A: Are there any sectors or industries that are standing out to you right now either outperforming or showing early warning signs?

Speaker B: Yes, absolutely. So, um, even for the system integrators, when I spoke with a lot of the members of CSIA at the annual conference this year, some of them were seeing their business boom. In fact, I spoke to one company that's involved in the data center space that says I've got my revenues locked in for the next two to three years because I know exactly what projects Nvidia is going to be doing. And I'm part of that mix. Right? So that's a really good example of an industry that is kind of insulated from some of the forces that I've been talking about. The investment that's flowing into semiconductor production, into the, anything related to AI. So data center construction specifically is continuing to be very, very robust. And off the charts. So the high tech space, I would say, um, is an area of significant opportunity. Construction is, uh, outside of that I think is an area that's facing significant weakness right now. And it's really, you know, construction in general, especially non residential construction, lags the overall economy by about 12 months. The slowing of economic performance now in the macro environment means that in 2026, 12 months from now, we're likely going to see continued weakness in the construction space. And you've got several thematic things going on there, right? Office occupancy is still very much down because people have switched to remote jobs. You've got some cutbacks in investment because of the high interest rate environment as well. So construction projects in general are typically based on uh, borrowing and in, you know, hundreds of millions, if not billions dollars of borrowing that is being prevented right now by high interest rates. So I would say that's an area that's really hurting. And then within manufacturing more specifically, you know, the OEM sector, anytime you're talking about large capex expenses, expenditures um, that also require borrowing money to fund, those are seeing some weakness as well. Um, so I would say manufacturing, construction are kind of flashing the warning signs. High tech, data center, semiconductor production, any of that stuff, AI oriented investment is really booming right now. So those are the positives and the negatives that I'm seeing currently.

Speaker A: Well, that's interesting. Well, how should integrators, OEMs and other industrial business leaders be thinking about capital investment timing right now?

Speaker B: Well, I think it goes to a bigger question which is, you know, if you're trying to manage your finances, uh, as a business entity in general, a lot of times there's kind of a focus on revenue growth. I've always been a big advocate of saying, you know, it's not your job as a business leader to grow revenue, it's your job to grow profit. You uh, have to protect your margins. Right? So the connection between profit or margin and capex projects is inexorably linked. Right. If you go back to that point I made about ROI calculations, you really have to scrutinize when you're going to pull the trigger on making an investment right now. Because the threshold for justification of making that a, uh, successful investment is currently substantially higher than where it was a few years ago before interest rate policy was elevated. So when they think about that, if you're that company that I alluded to earlier, that you know, you've got business locked in for two years and you're part of the um, sector that's booming right now. Be aggressive and invest because you've got probably decent profit margins holding up or being produced by the products that you're supplying to that customer. In the outperforming sector, if you've got little visibility in terms of, you don't have a large backlog, you don't have a robust and thriving order book, you're tracking your, for example, quoting activity, but you're seeing it's not converting to orders for you, rather than, you know, the conversion rate is lower than it typically is. I would be cautious at this point, and what I would be waiting for if I was that business leader, is kind of a, uh, settling down of the uncertainty. I would be cognizant that there are now tools that I should be leveraging, like the accelerated depreciation, the R and D tax credits. But I'm not quite ready to pull the trigger yet because. Because the uncertainty in the trade environment hasn't really settled yet. Let's give it a few more, hopefully months. I don't know how long this will continue. It's only up to President Trump to decide that. But as long as I'm seeing this volatility. And another good example, I mean, India, they had gotten a framework of a trade deal done right? India was going to have a 25% tariff through give and take. And so when companies knew that, then they knew, okay, in my calculations, now I need to account for that. But then overnight, President Trump doubled the tariff on India from 25 to 50% because he's trying to dissuade them from buying Russian oil. So tariffs right now are used as a geopolitical negotiating tactic. That was not the case during President Trump's first term in office back in 2016-2020. So recognizing that this game has changed is now really critical. And my advice, uh, secondary advice would be try to plan out for a variety of different scenarios and ask yourself, what will I do if scenario A comes to pass versus scenario B versus scenario C? The key is being proactive with developing those plans so that when things happen, you're not scrambling to develop the plan. You're actually implementing the plan that a lot of times allows you to have first mover advantage, which is a huge competitive advantage for you when things do start picking up. So that's the key thing that you can control, is making those preparations now for a variety of different outcomes. The last element that I would say that I would recommend is on the communication side. It's another area that businesses can control in this environment. So if you, if you're typically talking to your supply chain partners once a quarter, make sure that that's now once a month that you're sharing information that you're asking them for what they're seeing, uh, trying to come up with ways to mitigate some of the risk to both of you. You know, I think that that's a very, it's a moat building activity that creates uh, some protection, some padding in that relationship for your customers. You know, if you're talking to your key customers once every six months, maybe make sure you're doing that quarterly or whatever the cadence is. I would say increased by 50% or more. That's very much within your control and it doesn't hurt in any way. It can only provide positive things to the relationship. So those are all of the elements that I would say people that are contemplating, whether it's capex decisions or in general, how do we operate in this very kind of unpredictable environment. These are all elements that they can put to good use.

Speaker A: That's, uh, some solid advice. Are there any early indicators you're watching as we look ahead to 2026?

Speaker B: So, uh, leading indicators historically have been exceptionally helpful in terms of, you know, predicting whether that's six, nine or 12 months down the road. And for the industrial economy in particular, I've always relied on kind of three as my top group of these leading indicators that they are that total industry capacity utilization rate which leads industrial production by six months. It's copper prices. Because of the prevalence of copper as a, uh, input material in a lot of industrial applications, means that typically copper prices tend to lead what happens in the industrial space by about nine months. Of course, copper right now with the volatility of the tariffs, it's very difficult to say that there's a direct correlation between the increase in the price of copper and expected increase in industrial activity. So it's become a little bit less useful in that sense. But directionally speaking, it can still be informative for people to track what's happening there. And then the last one, and uh, my favorite one is the Purchasing Managers Index. That is basically the result of a survey of people that are responsible for buying behavior, purchasing managers and what their plans are. Looking out 12 months ahead, that leads the industrial sector by about a year. And basically for the last six months it's been kind of volatile and oscillating around the zero line. It's not signaling a lot of upside progress. It's not signaling that we're about imminently to enter recession. It's been going up and down depending on what the latest policy developments are, but it's kind of hovering around that zero line. So I would say based on that leading indicator, you can say we're likely to see this subdued, but like low single digit growth in the area of one, maybe one and a half percent on the GDP range over the next 12 months or so. And that seems right, given all of the other inputs that we've talked about today. I don't see huge costs for expecting a recession right now. But I also don't see enough confidence in the economy and enough confidence in the ability to plan by businesses right now. That says that we're gonna have this pretty substantial surge to the positive side over the next six to 12 months. So we're gonna kind of traipse along sideways until we start to get to see more clarity on the policy side. That's my guess to try to digest all of it and bring it back down to like, okay, well what does this mean to my company and what should I actually be doing about it? And that's a really tall ask right now for any business leader. I guess we can probably wrap it up by talking about these elements that think about what is in your control. You can't control policy, you can't control inflation or interest rates, you can't control what happens to tariffs. Right. But what you can control are, uh, some of those internal things that you do looking for productivity gains, looking for arbitrage opportunities on cost savings. Right. I mean, there's a lot of uncertainty a lot of times when, when this is happening, you can shop around and find people willing to give you better deals. So ask yourself, when is the last time I did that? Whether it's for whatever service or product that you're buying as a business, that's an input for you. When's the last time you shopped around for some of that and tried to get a better price? And that actually applies in your personal life as well. Right. Like, we tend to put things on crude cruise control and just think that this is the way that it is without thinking, okay, well, what can I actually influence here? Shopping around is one of those things that is very much in your power and you'll be surprised at the kind of deals that you might be able to get. So that's another element that I think people shouldn't lose sight of while they feel like the world is kind of on fire around them, that there are certain things that they can control.

Speaker A: I like that. Well, that speaks to what you Were saying earlier about protecting your profitability. So you do have some control over your costs. You can to evaluate those. I'm sure, I'm sure you're very right that, uh, people don't take a look at those and reevaluate. What can I save money on?

Speaker B: Yeah. Key thing to remember is don't feel bad that you haven't been doing these things. Like, there's no better time to start than right now. If you feel like you're behind the curve on any of this stuff, just start doing it and it's going to improve performance into the future. So don't spend too much time in the doldrums thinking, oh, uh, gosh, I should have been doing this the whole time. No, I mean now is the right time to start. So get better over time and try to develop systems that will allow you to track. Right. You can't improve what you don't measure is one of my favorite sayings. And so make sure you're measuring things and then communicating that information up the chain of command so that you can actually see the evolution of the performance of the business along a variety of metrics. And that way you can say, oh, we're getting better in this area, but we're staying stagnant over here and we're getting worse here. So we know where we need to invest time, energy and resources when necessary to improve.

Speaker A: And with system integrators, you gotta track it, but you've also gotta take a look at it and evaluate it on a regular basis. So I know a lot of these are companies, uh, are on the smaller side. So maybe the discipline, they could, uh, adopt that as well.

Speaker B: Absolutely, absolutely. I find that that element that you just mentioned, who owns the responsibility for it, that's a key question to ask, is if you say, oh, well, we should be doing this, at the end of the day, nothing changes because no one says, oh, I'm going to be the one that's responsible for that right now. I take it upon myself to track it. I'm going to make sure that I report it regularly to the powers that be and that we do something about it. Right. It's that, uh, onus of responsibility that needs to be established.

Speaker A: Yes, agreed. So if you could leave business leaders with one key piece of advice as, uh, they navigate the months ahead, what would it be?

Speaker B: I would say that as a business leader, despite all of the potential headwinds from the economy and all of the uncertainty, your job is to present a confident front to the people that look up to you for your decisions. Right. And so that's also very much in your control is to say, look, yes, the environment is changing. It's, uh, crazy pace. All of us are having a hard time, but together we've got the skill set and we've got the commitment that we're going to make sure that we stay on top of it and we make the best decisions possible. And I am confident that we will be successful in doing that. Because if you look back at our company's history, we've overcome challenges, we've gotten through pandemics together, we've gotten through great recessions together. Right. This is not a situation where you need to throw your hands up and say, well, I can't do anything about this. You can do something about it. I've given you plenty of examples of the type of things that you can do about it. But as a business leader, I would say project confidence in your ability to work through the challenges and get out on the other side successfully.

Speaker A: All right, Fake it till you make it.

Speaker B: The fake it till you make it adage, I think says that you have not done it before and you're not sure in your ability to do it right now. Right. I'm saying make it until you make it. Because a lot of times we look back in the rear view mirror and we're like, oh, we actually got through that pretty well. Even though in the moment I had no idea what I was doing, I couldn't tell if it was the right thing. And I was terrified every day I lost sleep because I thought my company was going to go under. But look at us now, right? And it's the same thing is that realize you've made it before and you can make it again. That's the difference.

Speaker A: That's even better.

Speaker B: I love it.

Speaker A: Well, thank you again, Alex, for taking the time to speak with us today. The system integrator community will really appreciate this helpful advice.

Speaker B: It's my pleasure, Christine. Thanks so much for having me and I look forward to seeing you at next year's CSIA show.

Speaker A: Alex Sholsovsky can be reached on LinkedIn or @BUNDY GROUP Founded in 2009, Rivergate Marketing is a full service digital marketing agency serving small to mid sized B2B companies trying to reach technical and engineering buyers. We are passionate about building strategic and data driven marketing and PR programs to help our clients compete and be found in a crowded digital space against much larger companies with seemingly endless marketing dollars. For more information, visit us online@rivergatemarketing.m m com sa.