Tuesday, November 06, 2018

The Coming Recession -- Are You Prepared?

By Steve Stapleton

We are in the tenth year of a booming economy.  Unemployment is at a 49-year low. Reuters reports that job growth is still accelerating and strong annual wage growth is expected.  The economy added a million jobs last year, the majority of which were with businesses of less than 500 employees.  Why should we not expect it to continue?  For the short term, it probably will.  But warning signs are all around us.

  • The Wall Street Journal reports that the third quarter marked the “32nd straight quarter of yearly growth below 2%, a long and consistent stretch of anemic growth that hasn’t happened before in the post-World War II era.”
  • Manufacturing activity has stalled for the first time in two years, a likely by-product of Trump’s controversial tariffs and trade wars.
  • Business investment is a laggard, companies having largely used the $1.2 trillion tax cut in the pursuit of stock buybacks rather than on capital spending.
  • Axios reports that GDP growth has slowed to a 3.5% annual rate, down from 4.2% in the previous quarter.  Economists have reportedly predicted growth of 2.9% in the fourth quarter and slowing further to 2.5% in the first quarter of 2019.

Among the economic forecasters, recession is a topic of concern.  Axios reports that Megan Greene, chief economist at Manulife Asset Management expects a recession after 2021.  She has noted, in light of the fact that the Fed is again raising interest rates, that the U.S. has entered a recession in 10 out of the last 13 rate-hike cycles.  “History is not on our side,” she has said.  Mark Yusko, founder of the hedge fund Morgan Creek Capital, puts the odds of a recession at 100% by next year, largely due to the continuing trade tensions.  Axios reports that the IMF, Ben Bernanke and Janet Yellen, both former Fed heads, all predict a continuing slowdown into 2020.

The economy is slowing.  Prepare today for the recession tomorrow.

  1. Be smart.  Sears made a decision 13 years ago to repurchase their shares rather than invest in their store infrastructure. It proved to be a defining decision and ultimately one that foreshadowed their bankruptcy.  See "How Sears Wasted $6bn...".  If you or your board face a similar fork in the road, engage legal and business advisors to game-plan possible outcomes before selecting the buy-back or re-vamp route.  See also "Lampert's Non-Strategy to Save Sears."
  2. Put on your binoculars to look further down the road. If you think or your leaders have a lack of vision, perhaps some new eyes will give you the fresh vision you need for the rapidly changing markets amid a business landscape being shaped by new technology 
  3. Prepare yourself now.  During the last recession, eighteen percent of companies filed for bankruptcy protection. The probability of a recession in the next couple of years is not if; it’s when.  As the attached article reminds you: harbor your money; enact price increases now; listen to your customer, secure financing and manage your budget. Most importantly, make sure you solicit the advice you need to plan for or to hedge against the coming disaster.  See "Do These 7 Things to Prepare."

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