Stan Sorensen
There are many factors in play that got us to this point; how do we get out of it?
Inflation. It’s almost become a curse word over the past year and a half. Whether or not inflation will continue to rise until it reaches another dreaded milestone — a full-blown recession — remains to be seen.
There are several factors at play contributing to record-breaking (not the good kind of record-breaking) inflation figures. The supply chain continues to lag behind consumer demand, driving up prices for available products even more. An increase in the money supply from stimulus checks and low-interest rates, in addition to investments from the Federal Reserve, have also all weighed in to create the current economic strain.
It’s affecting every average American’s pockets — including those involved in the business sphere. It’s important for businesses to be aware that many consumers have way less money to spend nowadays, with increased debt burdens and less and less money going into savings funds. If consumers feel like they’re getting less for their money, unfortunately, it’s likely because they are. And for those running a business, providing the same value for the customer is getting harder and harder as profit margin and revenue continue to disappear.
Costs of running a business are going up, which in turn can affect and possibly annoy the customers. All of us have gone into any restaurant or retail store and quickly realized that things are much more expensive than they used to be. And what’s worse is that we all have less to spend on these increasingly more expensive products and services. The data shows that disposable income has grown by only 3.8 percent in the past two years. At the same time, consumption is up 21.6 percent, which reduces savings to just 5 percent of disposable income. The numbers show we all have less to spend, and what money we do have doesn’t go as far as it used to.
To put it in perhaps overly simple terms: it’s a tricky time financially for many. It’s going to be essential to keep an even closer eye on your finances, whether you’re a business owner or a marketplace consumer. Now could be a prudent time to do a financial “check-up” in which you closely examine your personal or business finances to be sure they can handle any difficult changes such as increased business costs, increased loan costs or a decrease in investment portfolio returns.
If you have debt on your books, eliminating it as soon as possible should be a priority. Building up some more savings should be a central financial focus, as well. Both would be important steps in insulating your personal finances and the finances of your business from a possible recession.
As a reminder, a recession happens when there is a widespread drop in spending. It’s less severe than a depression but still impactful and rare. The Great Recession from the end of 2007 to the middle of 2009 was called a once-in-a-lifetime financial event. However, just 13 years later, the U.S. economy is in danger of falling into another extended recession.
While the possibility of a recession still looms, there are some signs of encouragement. The Associated Press reported on Sept. 15 that gas prices had dipped 26 percent from their sky-high figures in June. President Joe Biden, who has taken heavy scrutiny for the country’s economic roller coaster, saw a significant bump in approval over the past month. This suggests that many — on both sides of the marketplace — are feeling more optimistic about the current state of affairs.
Recent government action has also helped calm the seas of uncertainty. The Inflation Reduction Act, which also plugged in some ambitious climate and health policies, caught headlines in August. Additional bipartisan bills to combat overseas competition as well as the cancellation of thousands of dollars in student loan debt for millions of Americans have also been touted as major wins for the Average Joe by President Joe.
However, some financial pressure points remain. The housing market remains impenetrable for millions of homebuyers and according to recent research conducted by Altabank, construction of new housing is more expensive than ever.
And as we have all learned over the past few years, things can change — for better or worse — at an extremely quick rate, sometimes overnight, as we experienced in March 2020 when the COVID-19 pandemic took its grip on the United States. A month into the pandemic, more than 20 million Americans lost their jobs. Fortunately, things have recovered to a degree since then and interestingly, many companies are now struggling to fill their labor force as American sentiment towards work has shifted.
The Federal Reserve just raised the Prime Rate by 75 basis points, which could either loosen things up a bit or topple the country into recession.
So, to summarize the economy’s status in far-too-simplistic terms once again, things were trending the wrong way for a while, but they are getting a little better over the past few weeks. However, with major nation-impacting events on the horizon —including what is sure to be a contentious mid-term election — the way things are going one day could be completely different the next.
Many corporations and power brokers on Wall Street are taking defensive positions in anticipation of the worst — a lapse into recession. The tension has created a 52-week low for some of the stock market’s largest and oldest members of the S&P 500, including Walgreens, Hasbro and others. It might not be a bad idea for all of us — business owners large and small, as well as everyday consumers — to follow suit, just in case. Dump the debt and gather the savings.
It’s better to be safe than sorry.
Stan Sorensen is senior vice president and chief marketing officer at Altabank in American Fork.