You’d have to be under a rock not to have noticed the inflation. In addition to this, the Federal Reserve has raised interest rates. We’ve continued to see supply issues, and the World Bank warns that economists are concerned we may suffer 1970s-style stagflation. (In case you’re not familiar with it, according to Wikipedia, stagflation is the twin problems of slow growth and inflation.)
So what does this mean for businesses across the U.S? Will there be a recession in the next year?
This question has come up on several recent conference calls. Of course, no one knows the answers, but after talking with several other leaders, I remain hopeful that things may not be as dire as some headlines suggest.
Here are a few of my thoughts:
- Global growth may slow, and the labor market will continue to change, but I’m not sure we will see widespread unemployment in the U.S. Our labor market is still very tight, with May’s unemployment rate at 3.5 percent. Some sectors may see a rise in unemployment, but I don’t think we will see anything like the Great Recession of 2007 through 2009.
- The future of work is uncertain. Many high-profile leaders like Elon Musk may want people back in offices and factories, but will they return? I believe remote work is here to stay because many businesses realize they can still meet their goals with remote workers, and these workers like the flexibility and don’t want to commute daily.
- Commercial real estate may take a hit. According to the Wall Street Journal, “Commercial real estate is showing the first signs of cooling in more than a year, disrupted by rising interest rates that are already causing some deals to collapse.” Property sales were $39.4 billion in April, which was down 16% compared with the same month a year ago, according to MSCI Real Assets. The decline followed 13 consecutive months of increases.
- Commodity prices, which the war in Ukraine has exacerbated, will stabilize. According to Successful Farming, “Commodity prices are sky-high, with soybean futures topping $16.80 a bushel and the USDA forecasting the highest-ever farm-gate price for wheat. But high prices for corn, wheat and soybeans are far more likely to revert to their long-term averages than mark the dawn of a new era of permanently higher prices, said five university economists on Tuesday.” (According to Wikipedia: “The farm gate value of a cultivated product in agriculture and aquaculture is the market value of a product minus the selling costs. The market value is not the same as the price farmers get for their product, as the value they get per weight may be well below the market price.)
- Many companies will shift their focus from growth to profitability because of the cost of capital and investment. Leaders will shudder the companies that can’t demonstrate profitability or a plan to achieve it. For more about VC-backed companies, check out this article, “What comes after the easy money era ends for cash-burning tech companies in Silicon Valley.”
Whatever happens with the economy, at Communiqué PR, we will continue to look for ways to add significant value to our clients as we all adapt to changing market conditions. We’ll focus on continually optimizing our business in preparation for changing conditions, which means considering various scenarios for our company and team and helping our team and clients prepare for them.