In uncertain economic times, trade associations face the challenge of weathering recessions while ensuring the well-being of their employees and members. In a recent discussion on the A100 Podcast, renowned economist and Forbes Magazine contributor Bill Conerly joined Colleen Gallagher and Meghan Henning from OnWrd & UpWrd to shed light on the sensitivity of trade associations to recessions and offer guidance on risk management.
Reflecting on the technical recession triggered by the COVID-19 pandemic, Conerly highlighted that it deviated from a typical recession pattern. The Federal Reserve’s tightening measures, which began in March 2022, contributed to the unique nature of this downturn. However, he emphasized that there are usually substantial time lags before the effects of such measures are felt, often taking at least a year. Despite the tightening, Conerly noted that certain industries, like real estate, were already experiencing recessionary conditions. Acknowledging this disparity, he suggested that these sectors would also be the first to emerge from the recession.
Conerly further explained that interest-sensitive industries, such as real estate, construction, and car sales, would likely enter a recession sooner due to their dependency on interest rates. These sectors face challenges ranging from reduced home sales and non-residential construction projects to supply chain shortages impacting car sales. As these industries decline, ripple effects will be felt throughout the economy, prompting consumers to cut back on discretionary spending like travel and clothing.
Drawing on his expertise, Conerly expressed his belief that another recession is on the horizon. He anticipated its arrival in late 2023 or early 2024, emphasizing that it is unlikely to be as severe as the 2008-2009 recession. While cautioning against over-optimism about recession-proof businesses, he noted that sectors like healthcare have historically exhibited resilience during economic downturns. Assessing risk levels based on sector sensitivity is crucial for association executives seeking to understand the potential impact of a recession on their members.
Conerly advised association executives to adopt proactive risk management strategies. First, they should assess the risk profiles of their sectors, identifying those most vulnerable to recessionary pressures. Construction, for example, is historically known for its volatile boom-and-bust cycles. Conversely, healthcare has proven more resistant to recessionary impacts. By understanding the specific risks faced by their industry, associations can develop targeted strategies to mitigate potential setbacks.
Contingency planning is another vital aspect of risk management. Executives should analyze how their association fared during previous recessions and estimate the potential impact of a future downturn. Assessing past revenue drops and evaluating corresponding expense adjustments allows associations to develop a roadmap for managing a potential recession. Conerly stressed the importance of prompt action and suggested identifying triggers that signal the need for implementing the contingency plan.
While financial considerations are crucial, Conerly highlighted the significance of member engagement during recessionary periods. Associations should actively reach out to all members, including intermittent participants, to understand their needs and perspectives. By fostering strong relationships with members, associations can gain valuable insights into their challenges and adapt their services accordingly. Conerly urged association leaders to resist the temptation of focusing solely on the most active members and to proactively engage with marginal members who may offer valuable perspectives on the overall economic climate.
