The US economy is like a ship at sea. Businesses typically take advantage of the booming economy to hire more employees. More money should be spent on a long list of business-based benefits, including business expansion, payroll, benefits, and charitable donations.
However, when the red morning sky is on the horizon, corporate captains typically cut back on business through headcount reductions, curtailment of expansion plans, cutbacks in employee hiring, and reduced (or even zero) pay raises and benefits increases. You should heed the warning by smashing through the hatch.
Based on two major studies released in the last few months, businesses expect rough seas ahead. This means passengers on U.S. economy vessels must prepare for high seas and rough weather and make sound financial decisions.
A third-quarter survey of Business Roundtable (BR) member CEOs worried about their plans for hiring, capital spending, and sales forecasts over the next six months. Those surveyed indicated a reduction in planning in each of these areas.
BR describes the CEO survey responses as follows: War in Ukraine, including soaring global energy prices and a growing energy crisis in Europe.
Results may vary significantly from quarter to quarter. For example, in the first quarter of 2022, 11% of his survey respondents expected U.S. corporate employment to decline. By the second-quarter survey, that figure had risen to 19% he expects a decline in employment. This seems to contradict reports of a tight job market in the aftermath of COVID-19. However, that could start to loosen up as companies respond to the economic slowdown.
Interestingly, slowdown tends to eat itself up. For example, businesses see evidence that the economy is slowing and take steps to prepare for a decline in sales. When they take these steps, everyone – customers, employees, vendors, etc. – will be affected as the company cuts.
It’s not an economical take-off recipe.
At the same time, after making adjustments to respond to the business conditions caused by COVID-19, businesses are generally better positioned to weather such storms than in the past.
Governments in recent years have become accustomed to handing out money, especially due to the impact of COVID-19 and mandatory lockdowns. But today the central government owes her nearly $31 trillion. Last year’s budget deficit alone put him at $2.8 trillion, half the total national debt 20 years ago. If the government wants to sail that sea again, the only thing it can do is borrow or print money.
Another survey, the Business and Industry Economic Outlook Survey, primarily surveyed CFOs, CEOs, and controllers. His Sept. 1 data release by the American Institute of Certified Public Accountants (AICPA) and the Institute of Certified Management Accountants (CIMA) were less optimistic. In fact, it’s almost the other way around. The respondent’s own organisation’s hopes are now at 41%, a 6-point drop in his optimism from the second quarter of 2022, a 24% drop from where he was at this point a year ago. The outlook for the US economy remains bleak, with only 18% of respondents expressing optimism, unchanged from the second quarter. ”
Inflation is the biggest issue cited by AICPA survey respondents. Rising prices were the top concern for 87%, followed by higher prices for materials, consumables, and equipment.
In an economic wave like the one facing the United States, governments typically adopt growth-enhancing strategies through tax changes and reducing the regulatory burden on businesses. But the Federal Reserve is raising interest rates to combat inflation. Higher interest rates mean higher interest rates and higher borrowing costs. The effect is to slow the economy down.
But it’s not all dark. History has shown that businesses and individuals who receive financial advice from seasoned professionals and plan appropriately are best able to weather these storms. Somewhere, it’s sunny again. I want to be prepared for when the fair winds return.
Jimmy Rodefer is CEO of Rodefer Moss & Co., headquartered in Knoxville with offices in Tennessee and Virginia. Contact him at www.rodefermoss.com/Knoxville.