It seems like the economy is a central topic for the 2024 election campaigns. And that is justifiable, as it is a top concern for voters plus business leaders and owners.
There is a growing chorus of analysts and forecasters who project there is increasing evidence that we will, in fact, achieve that much sought after “soft landing.”
Here is some of the relevant data:
Gross domestic product (GDP) increased to an annual growth rate of 3% in the second quarter of 2024, up from 1.4% in the first quarter, reflecting continued consumer spending.
Personal income increased by 0.3% in July on a monthly basis.
Consumer prices dropped 0.1% in June, with core inflation being the lowest in three years.
209,000 jobs were created in June with wages up 0.5%.
That said, job openings in July fell for the second consecutive month to 7.7 million, indicating a softening in the labor market. Most pundits are now projecting a modest slowing of economic growth from 2.4% in 2024 to 1.5-2% in 2025.
The elephant in the room is interest rates. The cost of borrowing money is the highest in 20 years due to the Federal Reserve trying to bring inflation down. Most analysts now expect the Fed to reduce interest rates at least once before year-end, with an overall decrease of 1.5-2 pts. in the next 18 – 24 months. That lower cost of borrowing should help support spending, job growth, housing, and manufacturing, thus producing a “soft landing” as opposed to a recession.
Yes, there is a lot of noise due to the election year cycle. But we can breathe a little easier with a soft landing.
Implications
If you have a capital project on the planning table (more plant capacity, more trucks, more IT infrastructure), it would be wise to wait for interest rates to fall if you are financing those projects. Holding off may not be possible if your facilities or equipment are at the end of their useful life. In six months to a year, borrowing costs will be significantly cheaper, so wait if you can.
The issue, of course, is lead times. Expanding capacity or installing upgraded equipment often takes many months. Work with your lender to figure out a way to “ladder” your borrowing needs, while riding interest rates down. Or start out with the initial phase using cash flow as a source of funding.
The other opportunity is to refinance a high-interest rate loan once rates come down in 18 months to lower your monthly repayment. Then with lower expenses, see where you might invest those savings.
Similarly for other major new initiatives or growth projects, you might want to be a bit more optimistic in your views. So perhaps you might even consider moving up a product enhancement or new product launch, since a recession is now less likely. Or even remove the “hold” status on those planned new hires for 2025, particularly for those roles that are revenue producing.
Our Midwestern roots and values always make us want to get value when negotiating contracts with suppliers, agencies, and providers. So never let your guard down when it comes to costs. See where you have gotten returns on your spending, either through increased sales or greater efficiency. More bang for your buck.
As far as marketing decisions are concerned, nobody’s crystal ball is perfectly clear. The collective judgement of your leadership team and trusted business partners can serve as your guide. In our experience, starting out smaller and then adding fuel to the fire if revenues and growth rates warrant it is a smart, low risk way to move forward. Just be sure that you can scale quickly so that you do not miss out on opportunities.
At Damen Jackson, we have helped clients navigate in good times and bad. Avoiding a recession is a relief, and it puts a premium on prudent planning and smart decisions. We have the benefit of over 25 years of working with almost 800 clients to help your brand shine whether the skies are clear or if it is cloudy with rain. Our fresh eyes are there to augment the experience of your leadership team, stimulate productive debate, put hard working plans in place, and grow your business.
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