Sustaining Business Newsletter

The Economy Explained (in Plain English)
By Jennifer S. Hendrickson

Times are very uncertain.  We have a new chief of the Federal Reserve system, we’ll soon have a new President, the mostly bad advice given by mortgage lenders is affecting world markets and we’re in the middle of an increasingly unpopular war.  All of these things – and many more – play into our national and global economy.

When economists look into their crystal balls, they are mostly seeing comparisons to historical facts and figures.  For instance:  over the last half-century every housing downturn with the magnitude of the one currently underway in the United States has sparked a U.S. recession.  Couple that with rising unemployment numbers and a slowdown in consumer spending, and it would seem that we are repeating history.  The Fed (who uses the same crystal ball) agrees with this notion and is taking an aggressive stance to control the impending downturn by lowering interest rates. 

If it sounds like doom and gloom…wait!  These historically accurate predictions, while helpful, are not gospel.  The United States is no longer an economic island and the global marketplace requires us to reexamine our position.  World economies – with the exception of Japan – are doing quite well.  This is a strong indicator for increasing net U.S. exports and may serve to soften our downturn.  

What it means for us, personally:  Most of us think of our houses as an ever-appreciating asset.  Anyone trying to sell a home right now will tell you otherwise.  It’s likely that the housing market has not hit rock bottom yet so, if you’re on the buying side, you might want to sit tight for a better deal.  As an extra incentive, interest rates are likely to continue falling, making a later purchase more cost effective than a purchase today.

As far as investing is concerned, remember:  buy low and sell high.  When things start to decline, resist the urge to panic and sell everything you own to avoid losses.  Clinch your teeth, put down the phone, say a prayer and hold on to your shares.  Then, when you think things have actually bottomed out….BUY!  It’s like a blue-light special on stocks!

What it means for us, professionally:  Expect to see increased investments in technology and decreased capital outlays on bricks-and-mortar assets.  Many businesses are building cash reserves to help them weather the economic storm and ensure that they have plenty of money available when interest rates are at their lowest.  This is very good advice, if you find your business threatened by the current economy.

You can’t do much about what happens in the global economy or what happens with interest rates, but you CAN make your feelings known to your elected representatives.  For instance, if your business will be greatly hampered by the escalator clause in the new minimum wage laws – contact your legislator.  If the rising cost of healthcare is of particular concern, let those who are paid to represent you know.  You should focus your efforts where you can make positive changes so that when the negative economic news is thrown on your doorstep, you have positioned yourself and your business to deal with it.