As I sit here writing at the end of September the financial markets are not looking well. The Dow Jones Industrial Index is falling, the value of the dollar is rising, and a lot of analysts are saying a recession looks imminent—and some are saying it’s here.
How did we get here? Basically, human needs and expectations meeting real-world pressures.
The start of the pandemic had a lot of people staying at home, not traveling, or spending money out, but still able to fire up their Amazon accounts. It gave a big boost to consumer demand. That surge in demand caused strain on the supply chain. High demand and low supply meant rising prices for everything. Then came a spike in fuel prices (a problem made worse by the Russian invasion of Ukraine) which added cost to anything being shipped.
Consumer demand remained high, even through the post-pandemic return to work. I say “return to work” instead of “return to the office,” because after more than a year of working remotely a lot of people found they preferred working from home. For a lot of employers (but certainly not all), the pandemic had proven that remote work was possible without a loss of productivity. Data projections* estimate that by the end of 2022 nearly 25% of all professional jobs in North America will be remote.
This new freedom for so many employees to work for anyone from anywhere, combined with a tight labor market, made it an ideal time to shop for a new job; what the papers started calling, “The Great Resignation.” Companies began raising wages to attract and retain talent. Compensation costs for civilian workers increased 5.1% for the 12-month period ending in June, according to data from the Bureau of Labor Statistics.**
Those companies, in turn, passed the rising cost of labor on to their customers in the form of still higher prices. Workers, in response to higher prices demanded higher wages, and ‘round and ‘round the mulberry bush the country went in an inflationary cycle not seen since the 1970s. As the rate of inflation approached 9%, the Fed—whose mandate is to keep inflation somewhere around 2%—began raising interest rates.
In August, the annual inflation rate eased for the second straight month to 8.3%, the lowest in four months. But the expectation among most economists had been that it would be lower (about 8.1%). The Fed, fearing the long-term effects of inflation even more that the possibility of recession, raised the benchmark rates another 0.75 points on September 21st. And with that, a lot of institutional investors decided the US economy had reached a tipping point, prompting a sell-off.
So, is the US in a recession? By the informal definition of two straight quarters of negative GDP, yes we are. But recessions are typically coupled with high unemployment, and the labor market continues to boom. It looks as if the economy might be heading into unknown waters.
At times like these, aren’t you glad to be a plumber? Come what may, people will always need the taps to flow and the toilets to flush. New installations and remodel work might take a hit, but service, repair and maintenance will remain dependable sources of income. We have a column this month from Shay Bloch, Why the Skilled Trades are Recession-Proof, that gives more reasons to be glad—and even explores some opportunities.
If you have a solid business model and a solid business plan, it’s possible to thrive, even if the economy takes a downturn.