The U.S Economy’s GDP shrank worse than expected by 1.6% last quarter, and this was the first decline since the start of the pandemic in the first quarter of 2020.
It’s been over a decade since the last financial crisis, but experts predict we could face the next recession soon.
Overview
Goldman Sachs announced on June 20 that the chances of the US falling into a recession in the next year are about 30%, which is now double what they had predicted previously.
The bank recently downgraded its GDP growth expectations for the coming year following recent baseline interest rate increases by the Federal Reserve.
Economic growth has dropped globally to 2.9%, which is a steep drop from 2021’s 5.7%. The economic slowdown has caused inflation rates to hit 8.5% in May over the previous year, which was the fastest increase we’ve seen since 1981.
Key facts:
The U.S Economy’s GDP shrank worse than expected by 1.6% last quarter, and this was the first decline since the start of the pandemic in the first quarter of 2020.
The impact felt on the economy from this was obvious:
- We have all been spending more on goods and thus less on services and other discretionary items
- The Consumer Price Index increased to 8.6%, with the indexes for shelter, gasoline and food being the largest contributors.
- Prices are up everywhere: You’re feeling it from the gas pumps to grocery lines. Everything costs more.
- The national average for gasoline prices is around $4.86
- Unemployment is at 3.6%, but there’s a 1.9 jobs-to-openings ratio
Outlook for employers:
The demand for talent is still extremely high. The unemployment rate is currently around 3.6%, which is nearly considered full employment, but employers are still seeing a significant job skills gap. According to the Bureau of Labor Statistics, there are 11.4 million job openings currently, and 6 million unemployed, which makes for a 1.9 jobs-to-openings ratio. That’s a stark difference compared to pre-COVID numbers in February 2020 when the unemployed persons numbered 5.7 million with 6.9 million job openings.
We’re expecting employers to face a tough year with rising wages, lack of skilled workers, supply chain issues, and now the uncertainty of the impending economic recession.
In 2021, with more vaccine accessibility and the lifting of lockdown restrictions, the restaurant industry saw revenue go back to January 2019 levels at $66.48 billion. Restaurants and retail saw double-digit revenue growth year over year, but 2022 opened with consumers looking to adjust to the high price of consumer staples. This is directly impacting discretionary spending and putting a damper on any profits.
We knew we couldn’t artificially stay in a Bull Market forever. Business owners understood that the government was putting a lot of money into the economy over the past few years with things like the Employee Retention Credit, PPP loans and added unemployment benefits, but these ended up having a negative impact on the labor market, which we’re feeling the effects of now.
While this was a good thing in the middle of the pandemic to help prop up the economy, we’re seeing and feeling the results with inflation now reaching a 40-year high.
As a business owner, this could be the time to start meeting with your trusted advisors to look for ways to best prepare and make a plan for the coming months.
Inflation impact:
Everything costs more. You know that—look at the cost of basic items you’re purchasing this year compared to what you were spending a year or two ago. Businesses that have been profitable are not able to keep as much of that money because they’re having to spend more of it.
Higher fuel prices have a significant impact on business costs because of the added cost to anything transported by truck, train or ship, and while supply chain disruptions were key challenges cited last year, those concerns have only intensified.
During the first quarter of 2022, 85% of small business owners said they were concerned about the impact of inflation. Businesses are having to get creative to cope with rising costs, and 67% are saying they have already been forced to raise prices, according to the U.S. Chamber of Commerce.
Resources:
World Bank: Stagflation Risk Rises Amid Sharp Slowdown in Growth
Fortune: Goldman Sachs says a recession is now twice as likely as its previous prediction
New York Times: Inflation’s 40-Year High
Forbes: U.S. Economy Shrank Worse-Than-Expected 1.6% Last Quarter As Recession Fears Grow
Bureau of Labor Statistics: Consumer Price Index Summary, June 10, 2022
Bureau of Labor Statistics: Employment Situation Summary, June 3, 2022
RSM: Retail and restaurant industry outlook: Summer 2022
AAA: AAA National Average Gas Prices
Bureau of Labor Statistics: Job Openings and Labor Turnover, February 2020
US Chamber of Commerce: Special Report on Inflation and Supply Chain Shocks on Small Business
