When will the other shoe drop?Suddenly, we are at midyear and still unsure about an impending recession. While the large corporate world has laid off employees, the middle market remains strong.  However, signs of slowdowns are now appearing in the SMB market, and businesses are changing their plans for the back half of 2023 and 2024. Here are some things to look at in your own business.

Inflation in the US is moderating, but is still above 4.5% which means the Fed is still looking to raise interest rates and withdraw cash from the monetary system. Many economists are calling for the Fed to suspend rate increases to let the economy reflect their past increases. Monetary policy moves take 15-18 months for their full impact to be seen.

Consumer spending remains strong, but people are changing what they buy according to Costco and Walmart. They comment that consumers are focused more on staples and house brands as the effect of inflation is hitting their budgets. The impact of higher prices and negative economic messaging by the media is causing consumer confidence to flatten. The vacation industry reports full bookings for the summer as pent-up demand drives discretionary spending. However, other industries are not as robust as some supply issues still exist.

Inventories are building and middle market hiring is slowing, but still above the labor supply. Economists expect companies to reduce buying as they run down inventories to match the slowing economy. If your business is in trucking, residential real estate goods such as appliances, or heavy manufacturing, business has already slowed substantially.

Most economists believe the economy will continue to slow in the 3rd and 4th quarters of this year leading to a recession in the 1st half of 2024. They expect the Fed to continue raising interest rates through the 3rd quarter and then wait for the economic impact. Many economists believe the Fed will allow the inflation rate to remain at about 4% for a couple of quarters to create a soft landing for the economy.

So as a business owner, what should you do? Here are some suggestions:

  • Reduce inventories where you can.
  • Focus on your accounts receivable to increase your cash and avoid losses from struggling clients.
  • Focus your employees on managing costs and avoiding discretionary equipment purchases.
  • Keep your banker up to date with your strategic focus and profitability management. You will need their relationship while the economy continues to slow.
  • Have a Plan A for a soft landing, a Plan B for a bigger recession, and a Plan C to expand your business if some competitors falter. Many economists expect the recession to be uneven across industries with some hit harder than others.

Our sources of information come from ITR Economics and the Wall Street Journal. We summarize multiple opinions and data charts to provide you with strategic insight to operate your business.

C Squared Solutions provides interim or fractional CFOs, COOs, and CEO advisors in nearly all industries. We analyze and advise on these issues frequently through sophisticated modeling and experienced management. Give us a call or visit our website for more information and details. We have been there and done that!

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