Are We Headed Toward A Recession?

By: Pete Balciunas

Before I get started I want to thank economist Jason Schenker for the valuable information we use to help encourage our clients as we help market their business.

The short answer is yes and yes. I will address the first yes. There are three specific indicators, if paid attention to, can give enough margin to prepare you and your business for any coming recession. It just so happens that right now as I am writing this blog, two of the three indicators are pointing to a recession within the next 8 to 12 months (no crystal ball to know for sure...). The third indicator catches up with the other two overtime. We will discuss in detail each indicator so you know what to look for.

I will now address the second yes. No matter where we are in an economic cycle, recession is always somewhere off in the distance even if you’re in one or moving away from one. There’s always another recession coming. The news is the last place you want to learn that a recession has begun because at that point you’re well into the recession. Would it be nice to know what to look for before you’re in a recession? That’s what this blog is all about. Let’s get right to the point. What are the three critical warning signs?

Low Unemployment:

This sounds like a counterproductive indicator. Most people think low unemployment is a good thing for the economy. Low unemployment is good, yet at the same time that low number has only one direction to go and that is up. Currently the unemployment rate is 3.7% which is one of the lowest percentages and duration in history. As wonderful as this is, it is unsustainable continually. At the time this blog has been written, large corporations like Walmart, AT&T, General Motors, steel and tech companies are staging for layoffs. Some of these layoffs will larger than others based upon the other two critical warning signs.

The US Federal Reserve Begins to Raise Interest Rates:

Interest rates are still low yet we’ve seen some interesting upsets in the banking industry with short-term lending. Between President Trumps trade war and Neel Kashkari, president of the Federal Reserve Bank of Minneapolis, doing his best to contract the economy the US interest rate is a bit below 2% after the Fed lowered it slightly. Neel Kashkari would like to lower interest rates further for stimulation of the economy. President Trump said that the interest rates are too high for the current economy as well. The cost of borrowing money affects our next critical warning sign.

ISM Manufacturing Index:

This report shows sentiment in manufacturing and if it falls below 50, the break-even point, that means the US manufacturing sector is contracting. This means stuff is not being made which affect every part of the economy directly or indirectly. It’s bad news for the economy as a whole. The ISM number is currently 49.1. It has been dropping consistently over the last year. We are beyond the break-even point. The economy is officially contracting. Like a pebble in a pond, it takes awhile for the waves to reach shore.

So what do we know as of September 27 of 2019? Unemployment is the lowest it’s ever been and has been at that number for months. The president of the Federal Reserve and the president of the United States are in agreement that the current interest rates are too high while the Fed’s policy-setting committee continue to advocate for a sizable reduction later this year. We’ll see about that? The ISM Manufacturing Index is officially contracting at 49.1 with many large corporations staged for layoff.

What can you do to protect yourself and your business? There are a series of preemptive preparations you can make, one of which is a solid marketing plan ahead of the recession to insulate your business while your competitors fall to the wayside. Stay tuned for my next blog, “Marketing to Recession Proof Your Business.”