Currently, the top banks in the United States aren’t seeing major signs of weakness or threat of a recession. But we know that the general sentiment is not the same among small to midsize businesses around the country.
In fact, 58 percent of Americans think the country is already in a recession. Fear is spiking and it’s showing among American businesses and consumers.
We know that no two recessions are the same. The circumstances surrounding this one are vastly different—the biggest difference is the impact of the COVID-19 pandemic, which has been largely responsible for supply chain struggles, and an artificial Bull Market that was propped up by government benefits like the Employee Retention Credit, PPP loans and added unemployment benefits.
It’s hard to know if the resulting recession could just be the normal course of a business cycle—the U.S. has experienced 13 serious recessions in the past 75 years—or if this is something else entirely. But, here’s what we’re seeing so far, and some steps you should take to prepare.
Inflation, which is one key indicator of a recession, continues to rise with the most recent data saying it’s increased again to 9.1%.
Even with the increase in inflation, though, employment is remaining steady, gas prices are falling and while consumers are still spending, it is at a slower pace.
- 2 in 10 Americans say their wages have kept up with inflation.
- Hiring is still on par with what it’s been like in recent months, even as inflation eats into wages and interest rates rise.
- 528,000 jobs were added in July, and unemployment still sits at around 3.5 percent. This increase exceeded what economists had forecasted by roughly 300,000.
Outlook for Employers: Make a plan
All of us have been affected by supply chain issues in America. You’ve seen it at your grocery and retail stores and restaurants. Shipping strains are showing signs of improvement, but they are still significantly impacting many consumers and businesses. The only difference this month compared to months prior, is that it’s becoming increasingly mundane—it’s just a part of life small businesses are learning to accept.
This is going to require employers to focus on what they can control and reevaluate their strategic plans and how the next 1, 3, or 5 years might look.
For example, we reported last month that while restaurants and retail saw double-digit revenue growth year over year, 2022 opened with consumers looking to adjust to the high price of consumer staples, and this directly impacted discretionary spending. This has put a damper on profits.
Here’s how restaurants specifically are combating this: They have to learn to do more with fewer ingredients and streamline operations so they can work efficiently at a higher level with ingredients of which they may have a larger supply. Some restaurants are even pushing certain higher-price items, like chicken sandwiches, because they know it can help them turn a greater profit, it’s what’s available and what the market is demanding.
That’s an example of ways businesses are being more strategic with short-term plans so they ensure long-term success. These plans are not necessarily a tried and true method, but they can help you be prepared for the next year—hope is not a plan, and businesses can’t just be prepared to strong-arm their way through a recession.
Brandon Blanchard, CEO and founder of Blanchard Walsh Hospitality Consulting, says employers have to learn to be adaptable and look for other ways to save so they can continue to provide a higher level of service.
Some of the belt-tightening measures he suggests you take are:
- Look at changing your hours of operation: Find dead zones and alter those hours of operation to maximize efficiency. For too long this has been something businesses are unwilling to change, but right now you have to do what’s best to survive. This strategy can also be a solid long-term profitability boost if managed effectively.
- Have six months of cash reserves on hand: If you have six months of operating expenses saved up, you can ensure that when something such as a recession happens you can take care of your employees. Talk to your business managers and advisors to work this into your business plan. It’s a hard pill to swallow, but it will help you take care of your most valuable asset.
These are practical ways you can make sure that you are taking care of your employees during this time, which is vitally important, Blanchard says.
Invest in your people
According to the 2021 Training Industry Report, the average company in the U.S. spent $1,071 per employee over the past year on training costs. Investing in training current employees the right way helps you save throughout the year. According to Glassdoor, it costs roughly $4,000 to hire a new employee. Any number of factors could impact that number, such as the size and location of your business, the role you’re hiring for, etc.
Hiring employees is an important investment. But in a recession, now could be the time to save that cost and instead reinvest it in professional development to better train your current workforce, and those savings can be directly applied to your bottom line.
BUSINESSES HAVE LOST A TON OF PEOPLE TO OTHER INDUSTRIES AND YOU CAN’T JUST GRAB ANYONE OFF THE STREET AND EXPECT THE BUSINESS TO OPERATE THE SAME. INVESTING IN TRAINING YOUR CURRENT EMPLOYEES CAN HELP SAVE YOU A LOT IN THE LONG RUN.
These decisions fall on your company and what it sees as its biggest priority. It’s easy to become short-sighted and just focus on making back what you’ve lost immediately, but now is not the time to let go of the cultural tenets that got your business to where it is now. Make sure your employees have the tools they need to succeed.
Regardless of what decisions you make in the short term for your company in a recession, the best thing you can do is be open with your employees about any changes that may impact them. Making them a part of the process and solution (best ideas win) while keeping things fully transparent is an important way to show them the value you place on them as a part of your team; not just a person who does a job.
- CNN: What recession? America’s banks reveal few signs of trouble
- Inflation calculator: Current US Inflation Rates: 2000-2022
- The Hill: A look at the past three recessions
- Newsweek: Are We in a Recession? The Majority of Americans Think So
- NY Times: U.S. Economy Added 372,000 Jobs in June, Defying Slowdown
- AAA: AAA Average Gas Prices
- Wall Street Journal: The Popular Chicken Sandwich Gets a Redo at Panera Bread, Popeyes
- Glassdoor: What Does It Cost to Hire an Employee?
- Training Magazine: Training Industry Report: November 2021