YOUR BUSINESS AUTHORITY
Springfield, MO
YOUR BUSINESS AUTHORITY
Springfield, MO
With predictions of a possible recession continuing to receive national debate, a local panel discussion recently placed the topic in the crosshairs and offered suggestions for businesses to prepare.
The Springfield Area Chamber of Commerce hosted the March 29 event in which panelists weighed in on recession-proofing advice to help business owners in times of economic downturn.
Jeffrey Zimmerman, dean of the Breech School of Business at Drury University, wasn’t shy about his recession prediction.
“Are we going to go into a recession? Yes, but I only speak for me,” he said. “I would look for a recession probably more towards the fourth quarter of this year, leading into next year. How deep will it be is anybody’s guess.”
Zimmerman, who was joined on the panel by Jeff Childs, senior adviser with SVN/Rankin Co., and Bob Helm, owner and managing partner at Elliott, Robinson & Co. LLP, said an inverted yield curve as well as high inflation connected with the national job market and consumer spending are key indicators leading him toward projecting a recession.
“When the yield curve is inverted, it means short-term [investment] rates are higher than long-term rates. Why does that matter? Well, in terms of a recession, every recession since 1955 has been preceded by an inverse in the yield curve,” he said, noting there were two inversions last year. “That is one of the big indicators that people are looking at to say we are going to see a recession.”
A similar prediction was made at a March 10 economic outlook event in Springfield, hosted by Commerce Trust Co., a division of Commerce Bank. At the event, Scott Colbert, executive vice president and the company’s chief economist, said it takes about 18 months after the yield curve inverts to cause a recession. He said the last time it happened was July 2022, which led him to forecast a recession starting Jan. 3, 2024.
Zimmerman also pointed to inflation as an indicator, noting it began to rise in April 2021 and hit a 40-year high in June 2022 at 9.1%. The Federal Reserve then started the first of what has been nine interest rate hikes with the most recent in March of a quarter of a percentage point, bringing its benchmark borrowing rate to a 4.75%-5% target range. The actions are an attempt to curb inflation. The Consumer Price Index, a closely watched gauge of inflation, measured 6% at the end of February, down from January’s 6.4%.
“It’s about money chasing goods,” Zimmerman said of inflation. “If you think about COVID, the amount of money that was dumped in the economy, the amount of government spending that we’re seeing, along with supply chain shortages, the goods and the money are causing inflation.”
Will the Fed continue to fight inflation, and if so, how rigorously, Zimmerman asked.
At the Commerce luncheon, Colbert said it may be an optimistic view to believe inflation will reach 2%, the Fed’s preferred target, within the next couple years.
“We know that inflation has clearly peaked, and we know that it’s coming down,” he said. “We just don’t know how quickly it’s coming down. I would caution you to not expect it to get to 2% anytime soon.”
Recession memory
Childs, who has nearly 30 years of experience in commercial real estate, including during the Great Recession that began in late 2007 and ended in 2009, said having the proper mindset is a key for businesses.
“The first thing you have to do when you know you’re headed into a storm is get your mind right and get ready for it,” he said, noting it was a hard lesson to learn during the recession around 15 years ago. “You need to put yourself in a position for opportunities.”
Childs recalled the need to adapt to change amid the Great Recession.
“Sometimes we think of change as a scary thing. It scares me,” he said. “But there’s a lot of opportunities. In 2009 and 2010, pretty much every deal that I did of substance was through a bank. We had learned real quick to go where the money is.”
Helm said he’s lived through several recessions, having joined Springfield-based accountancy firm Elliott, Robinson & Co. in 1982. The firm always is advising its clients to keep good, current financial information. Doing so will help business owners be prepared and have accurate and up-to-date data to pull from when making company decisions.
“If you’re not doing that and you’re in charge of it, get your house in order,” he said.
Offering advice
Keeping three to six months of cash reserves to cover overhead costs is highly recommended, Helm said.
“That keeps your people employed, keeps the rent paid, utilities on and it allows you to persevere through the hard times that happen,” he said. “That’s really, really important. You should set your business up to do that as much as you possibly can.”
Company cost-cutting measures – frequently layoffs – appear in the news, Helm said. However, he said business owners should look beyond their personnel to find ways to trim costs. Delaying facility improvements or lowering inventory levels are two suggestions.
“There’s lots of ways to manage your costs,” he said, noting that the labor market appears to be tightening.
“Where it used to be really easy to leave your job today and get a new one tomorrow, it’s beginning to get a little bit harder,” he said.
The latest Job Openings and Labor Turnover Survey released April 4 showed there were 9.9 million jobs open at the end of the month, down from 10.6 million in January and 11.6 million a year prior. That marked the lowest total in nearly two years.
Zimmerman agreed maintaining a cash reserve is ideal, along with closely watching debt levels.
“I’m a big proponent of, when possible, keep away from entangling financial alliances. We borrow when we need to,” he said. “Getting into increasing your debt load when we’re entering potentially hard times is not necessarily a great idea.”
In real estate, Childs said everyone is trying for the same thing: to get more listings, as that means more revenue. But as companies chase new business, don’t forget about your core customers, he said.
“Make sure they’re getting everything that they deserve from you,” he said, adding doing so can help during tougher economic times. “Don’t ever take those people for granted. If you’ve got the same person you’ve worked with for 20 years, guess what? They need your attention just like the new guy that you’re trying to get and build a relationship with.”
The panel also offered suggestions to business owners looking to diversify their sources of income. Helm said while some may be tempted to look at alternative sources such as cryptocurrency, it’s better to stick with the familiar.
“My caution to any business owner is make sure you operate within your wheelhouse, what you’re best at,” he said, suggesting owners look to change or expand their customer bases. “In accounting, we’re always looking to expand into service areas we don’t work in that fit within the CPA practice.”
Alair Springfield is first Missouri franchise for Canada-based company.
