From an economic standpoint, 2024 has been both interesting and dynamic, with several key economic factors at play. Elevated interest rates and the Federal Reserve’s next policy moves are driving much of the conversation, while concerns about a potential recession still loom large. At the same time, the mergers and acquisitions market is showing signs of recovery after a sluggish 2023. Adding to this complexity is the fact that 2024 is also an election year, further intensifying the economic and political landscape.
Alex Chausovsky, Bundy Group’s director of analytics and consulting, provided the following insights into the current situation and what to expect moving forward.
State of the economy
The economic outlook for late 2024 and early 2025 reflects increased uncertainty due to recent data. In early August, a weaker-than-expected jobs report showed only 114,000 jobs added, falling short of the anticipated 175,000. This led to a shift in market sentiment: initially, bad news was seen as a sign of potential interest rate cuts, but now there is a growing fear of an imminent recession.
Despite this initial reaction, the economy remains robust. Key indicators demonstrate resilience: layoffs are low, hiring is steady (though slower than in previous years), and the rate of job quitting has decreased compared to 2021 and 2022. Furthermore, Q2 GDP growth exceeded expectations, reinforcing the economy’s strength into Q3 2024. Retail sales, which significantly impact GDP since personal consumption comprises about two-thirds of overall economic activity, also surpassed expectations, further illustrating the economy's solid footing.
Looking into early 2025, some economic headwinds are anticipated, but improvement, particularly in the industrial sector, is expected. This optimism is based on potential interest rate cuts by the Federal Reserve. These reductions should lower borrowing costs, boost capital expenditures and stimulate a rebound in economic activity. Leading indicators such as the ISM Purchasing Managers Index, industry capacity utilization and copper prices suggest a cyclical economic rise into at least early 2025, countering widespread fears of a recession.
Advice for business owners and executives
Approach the next six to 18 months with a realistic yet optimistic mindset. Many industrial businesses may not have experienced significant growth this year, with underlying data indicating flat growth or mild declines. However, the overall trend has been positive when considering the recovery from the pandemic in 2022 and 2023.
It is important to be data-driven rather than reacting out of anxiety, emotion or fear. Business leaders should lead their organizations with optimism and plan for growth in 2025 and 2026. They are encouraged to consider what they might need more of as the economy likely accelerates—whether it’s production capacity, headcount, or a more resilient and diversified supply chain.
There is also a need for scenario planning and having contingency plans in place, especially considering potential increases in protectionist policies and tariffs in 2025. Such changes could raise costs, which would be passed on to consumers and potentially affect demand. By preparing for these possibilities, businesses can better navigate potential challenges and continue to grow.
Election implications
The macro economy is generally robust and not overly affected by presidential or congressional election outcomes. However, policy uncertainty leading up to and following an election could slightly reduce GDP growth in the subsequent quarters. The overall economic impact is likely to be minimal, regardless of who wins.
To prepare, it is essential to maintain profitability, watch margins and understand what drives profit. Business leaders should engage in scenario planning and simulations to prepare for various potential policy outcomes. This approach allows companies to be proactive rather than reactive to any new legislation.
Mergers and acquisitions
Buyers in the M&A market have become more discerning, with a higher threshold for excellence compared to the era of cheap money. They are now more meticulous in calculating return on investment and are looking for companies that can sustain their recent growth, rather than those that only thrived due to pandemic-related factors. With higher borrowing costs, buyers seek acquisitions that justify capital investment and ensure sustainable growth. Strategic buyers have been more active recently than financial sponsors and private equity buyers.
The fundamentals of the M&A market remain strong. Expected cuts to the federal funds rate could lower borrowing costs, making more capital available for acquisitions. Additionally, a generational shift with more Baby Boomer business owners retiring will create significant opportunities for mergers and acquisitions in the latter half of this decade. These structural forces are expected to keep the M&A market robust heading into 2025 and 2026.
Bundy Group is a boutique investment bank that specializes in representing controls and automation, Internet of Things and cybersecurity companies in business sales, capital raises and acquisitions. Learn more at www.bundygroup.com or by contacting Clint Bundy at [email protected].
