Goldilocks has Come for Dinner Is Your Business Ready?
Consider this; the US economy grew at an impressive 4.2% annualized growth rate in the second quarter of 2018. This figure was revised upward reflecting more business-spending on software, and the forward trend looks to sustain a robust 3% annual growth rate for all of 2018.
The last time that happened was 2005. And things continue to look good economically now and for the next six months. But as the economy starts to cool in 2019, will Goldilocks stick around after dinner?
As of mid-September, all three major stock index averages, Dow, S&P, and Nasdaq are at or near record highs. And with unemployment rates lingering below 4 percent consumers are not only busy working, but also busy spending. The evidence is all around us.
And I am confident you can feel the growing enthusiasm when you speak with customers and employees who will likely altogether contribute well to the bottom lines of American businesses this Christmas season.
As far as consumers go, despite all the media head-fakes and White House melodramas this year the typical consumer seems oblivious to all the noise, like a 3-year-old at Disneyland.
And given that our U.S. economy runs on 70% consumer-driven spending for fuel, it is probably a good idea to keep them in La-La Land for as long as we can.
But as the party continues outside, I am also hearing from the subtle concerned voices inside about what if anything a CEO or business owner can do to prepare for a potential downturn (aka future recession) and stay one step ahead of their competitors. Hence the question:
How long will Goldilocks have her way in this late stage Bull Market for business?
While recent changes to US tax laws have triggered part of the recent boom; The Tax Cuts & Jobs Act of 2017 as you know substantially reduced individual and corporate taxes, and also lowered the tax bite to repatriate billions trapped offshore in business accounts.
The key drivers behind this market’s bull run for business is the euphoria consumers feel from their 401k balances and job prospects. US workers are quitting at the fastest pace in 17 years according to the Labor Dept. report.
Workers tend to quit their jobs when new job prospects appear more abundant. The JOLTS (Job Openings & Labor Turnover Survey) recorded nearly 7 million job openings as of late, a new record. And when people have job security, they tend to spend more on discretionary fun stuff, like trips to Disneyland. It’s all great fun until somebody pulls away the party punch bowl.
So now what? Should you keep your head down and hope for the best?
A few key measures to keep your eyes on may help avoid falling into a deep recessionary trap in the months ahead.
Start with how the political winds blow this fall after the November 2018 mid-term elections. If the Republicans stay in control of Congress, we should expect to see more of the same pro-business policies. However, if the Democrats win, all bets are off because the Dems will most likely refocus their political agenda to impeach and undue all that President Trump has endeavored to repair after decades of Washington mismanagement and neglect to help preserve American business’ competitiveness in this country and across the globe.
But Washington policies and politics alone are not the only foreseeable risk: If you are a CEO, pay attention and take action at the first signs of trouble. Here are three crucial key trend indicators to watch:
- Escalating Signs of Inflation: especially wage inflation lurking nearby, but also commodity input cost inflation, some which we will likely see if tariffs on Chinese imports increase. If you start seeing signs of rising costs, you need to immediately focus on margin gaps and inventory costs. Calculate how much you can absorb before increasing prices. You will need to absorb the difference and if that becomes a problem in your profit forecasts you should consider not carrying higher levels of inventory (on lower margin products) in 2019.
- Escalating Cost of Borrowing: will trend up later this year as the Federal Reserve Board votes to raise benchmark interest rates (borrowing costs) again to incrementally try and slow growing signs of inflation from this 10-year-old economic bull run expansion. Ahead of this, be sure to re-secure any long-term debts at lower fixed-interest-rates now. And any short-term borrowings aka Lines of Credit with adjustable interest rates should be paid off or swapped into long-term fixed-rate loans. Don’t delay. Once interest rates go up it could take a long time before they come back down, meaning the cost of business in the future will go up. So, act now and call your lender to discuss this timely critical issue, and how they can help you plan for it.
- Escalating Trade Wars: not knowing where, when, or how US Trade sanctions could affect your supply chain and customer accounts be prepared to absorb short-term cost increases internally, and try to make up for it by cross-selling more services like 1-day delivery (see my article CEO World Magazine.com; Winner Best Product 2018: Speed). But the best way to avoid the impact of a trade war in the meantime is to offer more products genuinely Made in the USA that Americans want to buy.
As we head into the final Quarter of 2018, America businesses will likely continue to see a robust demand market and a very Merry Christmas as cash registers ring up big sales this December.
The important thing to recognize here is to be ready to act quickly to the first signs of anything that could trip up those sales or profit margins. In 1999, Andy Grove, former CEO of Intel wrote the best seller: Only the Paranoid Survive… which can still save many CEOs from disaster. Read it, and you’ll learn how too. In the meanwhile, let the good times roll, but let’s also keep an eye on little Miss Goldilocks this winter. She could shake things up looking for a warmer spot elsewhere come January 2019.
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Latest posts by Rick Andrade
- Want To Learn The Best Way To Increase Sales This Year? Let’s Chat… - January 23, 2019
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