The U.S. economy is much like a ship at sea: businesses typically take advantage of fair economic weather to hire more employees; to spend more on expansion, salaries, benefits, charitable contributions – a long list of business activity-driven benefits.
However, when red morning skies are on the horizon, corporate ship captains usually must heed the warning by battening down the business hatches through reducing staff, cutting back on expansion plans, hiring fewer employees, and smaller – or no – raises or benefits increases.
Based on two major surveys that have been released in the last several months, businesses are expecting rough seas ahead, which means passengers on the U.S. economic ship should themselves be preparing – and making the right financial decisions – for high waves and rough weather.
The Business Roundtable’s (BR) Third Quarter survey of its member CEOs concerned their plans over the next six months for hiring, capital spending, and expectations for sales. What the surveyed showed is that plans had declined in each of those areas.
Here's how the BR described CEO survey response: "This quarter’s decline reflects a continued reduction in CEO expectations and plans for the next six months. The results are consistent with domestic economic conditions, including high inflation and higher interest rates, and persistent global headwinds from the war in Ukraine, including elevated global energy prices and the unfolding energy crisis in Europe.”
It’s hardly a recipe for an economic takeoff.
At the same time, having gone through adjustments to respond to business conditions created by COVID-19, companies are generally better positioned today than in the past to weather such storms.
Government in recent years, particularly due to COVID-19’s effects and forced lockdowns, has become accustomed to handing out money. But the national government today is nearly $31 trillion in debt: last year’s budget deficit alone was $2.8 trillion, equivalent to half the entire national debt a little more than 20 years ago. The only thing the government can do, if it wants to again sail those seas, is borrow or print money, and that would lead to higher debt, interest costs, and inflation.
The other survey, the Business and Industry Economic Outlook Survey, principally surveyed CFOs, CEOs, and controllers. Released on Sept. 1 by the American Institute of Certified Public Accountants (AICPA) and Chartered Institute of Management Accountants (CIMA), the data didn’t offer much optimism. In fact, pretty much the opposite: “Economic optimism is dimming. Hopefulness for respondents' own organizations is now at 41% — a six-point drop in optimism from the second quarter of 2022 and 24 percentage points lower than at this point a year ago. The outlook for the U.S. economy remained bleak with only 18% of respondents showing optimism, unchanged from the second quarter.”
The top issue cited by AICPA survey respondents: inflation. Eighty-seven percent said rising prices were a top concern, followed by increasing prices for materials, supplies and equipment.
In economic waves such as those the U.S. is sailing, governments will usually adopt pro-growth strategies through tax policy changes and easing the regulatory burden on businesses. However, the Federal Reserve is raising interest rates to combat inflation. Higher interest rates mean higher interest and borrowing costs. The effect is to slow the economy.
But not all is gloomy. History shows that businesses and individuals who receive financial advice from experienced professionals and plan well have the best ability to weather these storms. Out in front of us, somewhere, is again clear sailing. You want to be ready when favorable winds return.
This article first appeared in KnoxNews.