The year 2024 is shaping up to be 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 (“M&A”) 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.
To help make sense of these developments, Clint Bundy, Managing Director with Bundy Group, interviewed Alex Chausovsky, Bundy Group’s Director of Analytics and Consulting as part of the Bundy Group Insights podcast. As an expert on the markets and the economy, Alex provided valuable insights into the current situation and what to expect moving forward.
Clint: Where do you see the economy heading in late 2024 and early 2025?
Alex: 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 ahead to late 2024 and 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, with a forecast of a 25 basis-point reduction in September and possibly one or two more cuts by the end of the year. These reductions should lower borrowing costs, boost capital expenditures (CapEx), and stimulate a rebound in economic activity. Leading indicators such as the ISM Purchasing Managers Index (PMI), industry capacity utilization, and copper prices suggest a cyclical economic rise into at least early 2025, countering widespread fears of a recession.
Clint: What advice would you give listeners, especially business owners and executives, with that outlook in mind?
Alex: Business owners and executives are advised to approach the next 6 to 18 months with a realistic yet optimistic mindset, particularly in the B2B and industrial sectors. Many businesses in these areas 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.
Clint: What are the implications of the upcoming election on the economy, and what should business leaders do to prepare?
Alex: 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 whether President Trump wins back the White House or Vice President Harris takes office.
Specific policies to watch for under each potential administration are highlighted. For President Trump, proposed tariffs—10% on all imports and 60% on goods from China—could significantly impact costs for U.S. families and businesses. Business leaders are advised to assess their vulnerability to these tariffs, whether through direct product impacts or supply chain components. For Vice President Harris, potential policies could include price controls, subsidies, and guaranteed income, which would also be inflationary.
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.
In closing, it is important to remember that policy changes typically take time to implement and impact the economy. Business leaders should focus on running their businesses well, emphasizing the importance of fundamentals such as profitability, growth, diversification, talent acquisition, scalability, infrastructure, and succession planning. These are critical elements of a strong business that creates value over the long term.
Clint: I see positive trends through our work at Bundy Group, where we specialize in representing privately held businesses in sales and capital raises, particularly core industry verticals of healthcare & life sciences, technology-enabled services and business services. Companies that are stable, profitable, and growing consistently attract buyers or capital partners, which is a pattern we have observed over Bundy Group's 35-year history.
Although the overall M&A market experienced a downturn in 2023, Bundy Group had a strong year. According to global M&A data, both deal count and deal value were up approximately 10 to 15% through Q2 of 2024. Based on this data, I am optimistic that this momentum will continue into 2025. What are your thoughts on the M&A market today, Alex? Are you bullish on it over the next 12 months?
Alex: 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 (ROI) 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.
For business owners contemplating an exit, it is important to consider a competitive bidding process. Engaging multiple buyers can often lead to better deals than selling directly to a single strategic acquirer. Business owners are advised to consider this strategy to maximize their transaction outcomes.
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.
The entire interview can be found on the Bundy Group Insights podcast, which is on Apple Podcasts, Spotify and Youtube. Readers can also follow Alex’s economic analysis through his LinkedIn profile (Alex Chausovsky | LinkedIn).
Established in 1989, Bundy Group is an industry-focused investment bank that specializes in representing business owners and management teams in business sales, acquisitions, and capital raises. The team of highly experienced investment bankers leverages extensive industry knowledge and skill to provide hands-on guidance to clients through every phase of the business transaction. Bundy Group has been a trusted partner in more than 250 closed deals over the past 35 years, providing high quality options, actionable insights, and delivery of optimal strategic fit at a premium value for our clients.
Bundy Group Securities, LLC is a registered broker-dealer and member of FINRA and SIPC. More information on the background of Bundy Group Securities, LLC is available at FINRA's BrokerCheck.
This content is for informational purposes only and is not intended as investment advice or a recommendation to buy or sell any security.
