AN ECONOMIC CROSSROADS
This is the best job market in the history of this country. At least, that’s what the numbers tell us. The unemployment rate sits at 3.6%. That means that 96.4% of those who want a job already have one. If you look past the numbers and listen to the comments of everyday people, most will tell you they are better off now than they were 10 years ago (when we were emerging from one of the worst economic recessions in 70 years). Where do we go from here? The important message here is not to assume it will be onward and upward.
In spite of seeing “help wanted” signs everywhere you look, we find ourselves at an economic crossroads. The bond market is signaling the possibility of recession with an inverted yield curve (read more about what that means here). Additionally, the continued trade dispute with China and the threat of tariffs produce unknown ramifications for what has become the longest economic expansion on record. The report card for our economy, the Gross Domestic Product went down to 2.1% in the second quarter, compared to 3.1% in the first quarter (see more info here). More concerning is the fact that businesses reduced their spending in the second quarter, particularly in the manufacturing sector. Despite signs of the slowing economy, the Fed may be able to lower rates to help re-energize business investment and sustain what has been strong consumer spending. Eighteen months ago, corporations were celebrating huge tax cuts, small businesses were feeling optimistic about the economy and they were hiring new employees to prove it. Today, many businesses are still hiring and growing, but we’ve lost some steam as evident by the move down in GDP.
Many will make the case these lower numbers are temporary and we will get back to strong growth in short order. Others will make the case that a recession is looming. I do not intend to make either case, but instead want to advocate for preparation for slowing growth at least, and recession at worst. During the recessions of 2001 and 2008, I can remember talking to people who mourned their lack of preparation. I feel compelled to encourage people not to repeat those mistakes. I am not sounding the alarm that tough times are imminent. I am not proposing that you pull back and avoid taking any risk in this environment. I am proposing the following:
- Instead of borrowing more money to grow, consider using earnings and cash to pay down existing debt.
- Increase your cash reserve. This is the first line of defense, should times get tough.
- Don’t be afraid of risk, but be more strategic in the risks you take. The margin for error in this environment has narrowed, so make sure the potential reward is worth the risk.
We’d love to be of service to you if you need advice on borrowing, saving or managing. Let us know how we can be of help to you and your finances.