3 key themes that will drive your business

Our latest Vistage CEO Confidence Index survey revealed that just 4% of small and midsize businesses are not experiencing effects of inflation. CEOs report that increased prices from vendors, higher wages and cost of inputs and raw materials continue to have an impact both on profitability and growth for their businesses.

In our recent webinar, “A capital market’s perspective on what will drive your business in 2022,” Adrian Cronje, PhD CFA, CEO and CIO of Balentine identified 3 key factors that will drive your business over the next year. Considering these factors in your strategic planning may help weather the uncertainty of the coming months.

Transcript

Inflation

Self-evidently, the first most important theme is around inflation. As I said to you today, inflation is tracking to average over 4%, which is twice the Federal Reserve stated target of 2%. I’m sure that’s driven very interesting conversations in your businesses around cost of living adjustments, as it has in mine.

The inflation that we are experiencing today look to be stubborn and sticky as opposed to concerning. But the most important thing that we need to keep an eye on is that inflation expectations remain anchored.

Yes, inflation may be sticky and above average, but that remains a stable state for only as long as we all believe the Federal Reserve can orchestrate a normalization of monetary policy in a calm and measured way so that they don’t risk getting the genie out of the bottle and having to raise interest rates very aggressively in the future. Wages today are running at over 4% wage growth, so there is already evidence of some of this stubborn translating into increases in wages.

Incidentally, wages are rising at the bottom end of the labor market by much more than inflation and at the top end of the market by a lot less than inflation. And so perhaps this is a good thing because the real wage gap between the bottom end and the top end has, in my view, been one of the proximate causes of how populous politics has become on both sides of the aisle.

And so a sustained period of real wage growth narrowing may indeed be a good thing. There are all sorts of things to discuss around labor market dynamics today.

I have a colleague in my Vistage group that runs a large regional staffing company, TRC staffing, who has described the labor market as experiencing a true black swan event today unlike anything that company has seen over the last five decades. You’ve got this enormous demand for labor coming from stimulus, and you’ve got this enormous shortage of supply and labor coming at the top end from the great resignation and the immediate aftermath of the COVID. And at the bottom end where people have not been incentivized to actually find work with all the stimulus checks that have been handed out.

And so it’s a really puzzling conundrum to see more job openings to then there are available workers. And so it’s going to be absolutely critical for us to think about how to attract and retain talent. I’ll make a comment about that in a moment or two.

I know we’ve delved deep into that topic on these sessions before, but this view is just is not going away anytime soon. And this inflation labor market dynamic is tied to the second key theme, which I hope this value versus growth index will help you monitor in real time.

Productivity growth from “Tech-celeration”

And that is what is the productivity growth that we are all going to enjoy from the forced acceleration and adoption of new technologies that has really been accelerated by the pandemic and the post-pandemic world. Here, of course, we’re not just talking about our ability to communicate virtually with each other, as we are doing today. I am talking about what I see across the entire Vistage network, which is widespread adoption of automation, where companies are doing more with fewer workers.

I’m talking about the digitization of our payment system, where we are replacing cash and so forth with electronic transactions. The power of the blockchain protocol, which underlies cryptocurrency, which is the really big story around Bitcoin and how that distributed ledger is disintermediating traditional intermediaries.

It really is a very, very exciting time for innovation across the economy. Perhaps this is one thing that the authorities were banking on because, as I used to say in 2018 and 2019, the missing piece of the jigsaw in that long expansion was where had productivity growth gone?

It usually constituted around a quarter of our GDP business investments in the future, and it had been wholly absent for the better part of the decade. Well, creating a high pressure economy, betting on “go big or go home,” has forced a lot of companies to innovate and to find new and smarter ways to do things.

And whether productivity growth picks up next year or not will be a key part of what latitude the Federal Reserve will have to raise interest rates in a more slow and measured way so that they don’t feel like they have their backs against the wall as the sticky inflation turns into a wage price spiral. So really, really important to keep a focus on that.

If growth starts to perform in line with value, again, that might be a signal that some of this productivity growth has actually arrived and is giving the Federal Reserve more room to maneuver by creating a speed limit for the economy that is higher than it has been in the past without creating unsustainable inflation.

COVID-19: From “Pandemic” to “Endemic”

And then lastly, perhaps Bill Gates was right all along. I remember him saying early on that the pathway for COVID-19 to go from a global pandemic to something that’s endemic may take three years. And as he said at the time, it’s all going to depend on our ability to develop a vaccine, but more importantly, to adopt and distribute a vaccine.

And something that’s more endemic so that we have these variant flare ups occurring, but not forcing us into lockdown, is going to depend a lot on our vaccination rates. 

Related Resources:

Balentine: Road to Recovery

Member exclusive: Balentine resources for Vistage

The CEO Pulse: Inflation Resource Center

Webinar: A capital market’s perspective on what will drive your business in 2022

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