The Next Recession?

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**cuda1179**

My area of the country tends to be in a bit of an insulated bubble that fends off the recession. For businesses in the area finding employees is hard, even harder when you want ones that aren't half-brain dead or on drugs.

Local businesses have starting wages for unskilled, no-experience employees consistently jumping well above minimum and still we lack workers. This even goes for Mom and Pop businesses.

**Easy E**

cuda1179 wrote:
My area of the country tends to be in a bit of an insulated bubble that fends off the recession. For businesses in the area finding employees is hard, even harder when you want ones that aren't half-brain dead or on drugs.

Local businesses have starting wages for unskilled, no-experience employees consistently jumping well above minimum and still we lack workers. This even goes for Mom and Pop businesses.

I have experienced similar issues when operating in rural areas. They are insulated from larger economic shocks for the most part. The big exception being if the local big employer closes due to the larger recession.

Same issue with employees too.

**cuda1179**

Easy E wrote:
cuda1179 wrote:
My area of the country tends to be in a bit of an insulated bubble that fends off the recession. For businesses in the area finding employees is hard, even harder when you want ones that aren't half-brain dead or on drugs.

Local businesses have starting wages for unskilled, no-experience employees consistently jumping well above minimum and still we lack workers. This even goes for Mom and Pop businesses.

I have experienced similar issues when operating in rural areas. They are insulated from larger economic shocks for the most part. The big exception being if the local big employer closes due to the larger recession.

Same issue with employees too.

Sometimes I find it challenging to keep in "boss mode", especially after one of my new hires (17 years-old, lives with mom and dad) tells me he needs a raise because the $11.50/ hour isn't enough to live on.

**NinthMusketeer**

It isn't, but that leads into a larger dynamic that could go anywhere based on his personal situation.

**Easy E**

Yeah, it is tough as the boss as you need to balance the needs of the business (Often bank-rolled by you) and the employee. Sometimes, you just have to say good bye to good people if it doesn't make sense for the business.

There was I time in my life where I was pretty much bankrolling 21 people and their families on my corporate salary. My employees were easily making more than me take home. However, that is what I wanted to do to keep them around while the business was going through some emergency water damage repairs. Otherwise, I would re-open and have no one to work for me as they all would have moved on. Tough year.

**NinthMusketeer**

And they say starting a business is easy enough that anyone could do it!

Seriously though, tough decisions and I certainly do not envy you for being in the position of having to make them.

**Easy E**

NinthMusketeer wrote:
And they say starting a business is easy enough that anyone could do it!

Seriously though, tough decisions and I certainly do not envy you for being in the position of having to make them.

Starting is very easy! Only about $100 and one form!

Oh, making it profitable? That is super hard.

The reason most businesses do not make it 5 years is a combination of psychological burn-out, no longer able to absorb loss, and lack of sleep.

**Easy E**

The Economist put out there 2020 predictions and.....

https://worldin.economist.com/article/17506/edition2020dont-bet-recession-2020

the markets sometimes predict disasters that don’t happen; 2020 could be one of those years.

**Easy E**

A recent article about the Recession, and why no one cares about it anymore....

https://slate.com/business/2019/12/recession-economy-fed-rates-trade.html

So what changed?

The short answer is that government officials noticed the looming danger and made a course correction, both in the U.S. and around the world. The Federal Reserve cut interest rates three times. Other countries’ central banks similarly eased up on monetary policy. The Trump administration, meanwhile, struck a “phase one” deal with China, which averted an additional steep and destabilizing round of tariffs.

These moves were important for a couple reasons. First, they took pressure off the economy: After two years of hikes, interest rates were almost certainly too high, and the threat of more tariffs has likely hurt investment. But just as crucially, the moves showed that policymakers were actually alert to the dangers of the moment and willing to take steps to prevent a downturn.

**Easy E**

Mack Truck to lay-off a bunch of people as the big truck industry slows down....

The cuts were expected after Mack said last month that it would need to slow production to cope with reduced demand. Mack expects the North American truck market to be down nearly 30% this year.

https://www.nytimes.com/aponline/2020/01/08/business/ap-us-mack-trucks-layoffs-1st-ld-writethru.html

**LordofHats**

Easy E wrote:
Mack Truck to lay-off a bunch of people as the big truck industry slows down....

The cuts were expected after Mack said last month that it would need to slow production to cope with reduced demand. Mack expects the North American truck market to be down nearly 30% this year.

https://www.nytimes.com/aponline/2020/01/08/business/ap-us-mack-trucks-layoffs-1st-ld-writethru.html

Manufacturing is looking to have some major retractions this year too.

**Easy E**

Indeed, it was a soft spot in the new jobs report....

https://www.usatoday.com/story/money/2020/01/10/jobs-report-employers-added-145-000-jobs-december/4425668002/

U.S. hiring slowed sharply in December as employers added 145,000 jobs, raising concerns that trade worries and a persistent downturn in manufacturing may be taking a bigger toll on the broader economy.

The unemployment rate was unchanged at a 50-year low of 3.5%, the Labor Department said Friday.

If the Unemployment Rate has continued at a 50 year low, why is wage growth also largely flat/going down?

Average hourly earnings increased 3 cents to $28.32, pushing down the annual gain to 2.9% from 3.1%.

After nearing 3.5% in late 2018, pay hikes have moderated but remained at or above 3%. That has helped keep inflation stubbornly low and allowed the Fed to lower interest rates three times last year to fend off a possible recession down the road.

**Vulcan**

Easy E wrote:
Indeed, it was a soft spot in the new jobs report....

https://www.usatoday.com/story/money/2020/01/10/jobs-report-employers-added-145-000-jobs-december/4425668002/

U.S. hiring slowed sharply in December as employers added 145,000 jobs, raising concerns that trade worries and a persistent downturn in manufacturing may be taking a bigger toll on the broader economy.

The unemployment rate was unchanged at a 50-year low of 3.5%, the Labor Department said Friday.

If the Unemployment Rate has continued at a 50 year low, why is wage growth also largely flat/going down?

Average hourly earnings increased 3 cents to $28.32, pushing down the annual gain to 2.9% from 3.1%.

After nearing 3.5% in late 2018, pay hikes have moderated but remained at or above 3%. That has helped keep inflation stubbornly low and allowed the Fed to lower interest rates three times last year to fend off a possible recession down the road.

Because the jobs being created and filled are largely service jobs that pay... poorly. This is in opposition to the jobs that were lost in 2007, which were mostly living-wage jobs and quite a large number were considered well paying jobs.

**Mario**

Yup: https://www.brookings.edu/blog/the-avenue/2020/01/08/low-unemployment-isnt-worth-much-if-the-jobs-barely-pay/

* Two-thirds (64%) of low-wage workers are in their prime working years of 25 to 54.
* More than half (57%) work full-time year-round, the customary schedule for employment intended to provide financial security.
* About half (51%) are primary earners or contribute substantially to family living expenses.
* Thirty-seven percent have children. Of this group, 23% live below the federal poverty line.
* Less than half (45%) of low-wage workers ages 18 to 24 are in school or already have a college degree.

**Easy E**

CFOs expect downturn in 2020..... but not he Fed....

https://www.cfodive.com/news/half-of-cfos-expect-recession-in-2020-fed-sees-more-growth/568910/

https://www.wsj.com/articles/cfos-brace-for-potential-recession-in-2020-11576062060

Fifty-two percent of CFOs believe the U.S. will be in recession by the end of 2020, and 76% predict a recession by mid-2021, according to a Duke University/CFO Global Business
Outlook survey released Wednesday.

“Business leaders continue to expect an economic slowdown in the U.S. before or concurrent with the presidential election,” said John Graham, finance professor at Duke University’s Fuqua School of Business and director of the survey. “I’d expect uncertainty about the election itself to cause firms to slow expansion in the summer and fall of 2020.”

Seventy-nine percent of CFOs in Asia believe their countries will be in recession by the fourth quarter of 2020, as do the majority of CFOs in Africa (77%), Canada (67%) and Latin America (55%). Forty-nine percent of CFOs in Europe expect a recession by the end of 2020.

CFOs' pessimism doesn't track the latest forecast by the Federal Reserve. The Fed's Open Market Committee, which left short-term interest rates unchanged on Wednesday, is forecasting 2% growth in 2020 and 1.9% growth in 2021.

"The labor market remains strong and ... economic activity has been rising at a moderate rate," the Fed said in a statement Wednesday.

CFOs are nevertheless ready for a downturn; according to the Duke survey, 56% of U.S. companies say they are taking steps to prepare.

Among these firms, 59% are strengthening their balance sheets, 58% are reducing costs, 49% are increasing liquidity, and 31% are scaling back or delaying investment.

“During the last recession, CFOs could genuinely say that their lack of planning was a result of a sharp downturn that was a surprise to most,” said Campbell Harvey, a founding director of the survey and Fuqua finance professor. “However, it would be foolhardy to claim that the recession in 2020 or 2021 was a surprise. Although recessions are not controlled by CFOs, the impact on their firm is, to a large degree, managed by the CFO. This time around, CFOs will be judged by their preparations.”

Companies will continue increasing their cash holdings due to economic uncertainty. “Hoarding cash and reducing debt are the most obvious tactics to dull the blow of a recession,” Harvey said.

Fifty-four percent of U.S. firms indicate they are unlikely to spend their cash holdings during 2020 to preserve liquidity and spending power, should a recession take hold and tighten lending markets.

So, that dreaded "Uncertainty" again..... I can't recall a time when there WAS certainty, so it is just starting to look like an excuse to sit on cash and hand it back to Wall Street via stock buybacks and dividends.

**Vulcan**

Great. The very men who can cause a recession by panicking, are already panicking.

**NinthMusketeer**

That does go well with your sig you know.

**Vulcan**

True, but I generally try to restrict it to my players, y'know? Got to keep them on their toes or the game gets boring.

It's not really a good principle to run an economy on.

**Easy E**

Vulcan wrote:
Great. The very men who can cause a recession by panicking, are already panicking.

Yes, it does smack a bit of "Self-fulfilling Prophecy".

**Vulcan**

In the end, all the talk about profit margins and dividends and stock valuations and all the other trivialities are... well, trivial.

Recessions are caused by powerful people panicking and taking actions that turn small downturns into huge economic uncertainty among the masses. Stability builds strong economies; instability makes them weak. It really is that simple.

**gorgon**

Vulcan wrote:
In the end, all the talk about profit margins and dividends and stock valuations and all the other trivialities are... well, trivial.

Recessions are caused by powerful people panicking and taking actions that turn small downturns into huge economic uncertainty among the masses. Stability builds strong economies; instability makes them weak. It really is that simple.

That is absolutely ridiculous. You can't possibly be that naive.

**nareik**

gorgon wrote:
Vulcan wrote:
In the end, all the talk about profit margins and dividends and stock valuations and all the other trivialities are... well, trivial.

Recessions are caused by powerful people panicking and taking actions that turn small downturns into huge economic uncertainty among the masses. Stability builds strong economies; instability makes them weak. It really is that simple.

That is absolutely ridiculous. You can't possibly be that naive.

are you saying there are people in power that are disaster capitalists who engineer circumstances to give themselves opportunity to extract wealth from the ‘misfortune’ of others?

**Vulcan**

gorgon wrote:
Vulcan wrote:
In the end, all the talk about profit margins and dividends and stock valuations and all the other trivialities are... well, trivial.

Recessions are caused by powerful people panicking and taking actions that turn small downturns into huge economic uncertainty among the masses. Stability builds strong economies; instability makes them weak. It really is that simple.

That is absolutely ridiculous. You can't possibly be that naive.

And yet a close examination of history bears it out.

Automatically Appended Next Post:

nareik wrote:
gorgon wrote:
Vulcan wrote:
In the end, all the talk about profit margins and dividends and stock valuations and all the other trivialities are... well, trivial.

Recessions are caused by powerful people panicking and taking actions that turn small downturns into huge economic uncertainty among the masses. Stability builds strong economies; instability makes them weak. It really is that simple.

That is absolutely ridiculous. You can't possibly be that naive.
are you saying there are people in power that are disaster capitalists who engineer circumstances to give themselves opportunity to extract wealth from the ‘misfortune’ of others?

Generally, people who are panicking aren't engineering anything. They're panicking. They've lost confidence in the stability of the system.

They then lay off people and cut orders for repairs/new equipment/maintenance/etc. and put people out of work. Those people no longer have income and stop spending, and now everyone else loses confidence in THEIR future employment, thus reducing THEIR confidence in the stability of the system, and they reduce spending. Now less is being spent, revenue and profit are down. This causes more executives to panic, they lay off more people, wash, rinse, repeat.

Where if the executives just keep their cool, remain confident that the system is still stable despite this minor issue, accept this quarter's not going to set new record profits, cut just the bare minimum to remain profitable... you don't wind up with the whole panic-inspired tailspin.

**Mad Doc Grotsnik**

nareik wrote:
gorgon wrote:
Vulcan wrote:
In the end, all the talk about profit margins and dividends and stock valuations and all the other trivialities are... well, trivial.

Recessions are caused by powerful people panicking and taking actions that turn small downturns into huge economic uncertainty among the masses. Stability builds strong economies; instability makes them weak. It really is that simple.

That is absolutely ridiculous. You can't possibly be that naive.
are you saying there are people in power that are disaster capitalists who engineer circumstances to give themselves opportunity to extract wealth from the ‘misfortune’ of others?

Both.

Disaster Capitalists know how to bring about uncertainty. The rest sorts itself out.

**NinthMusketeer**

nareik wrote:
gorgon wrote:
Vulcan wrote:
In the end, all the talk about profit margins and dividends and stock valuations and all the other trivialities are... well, trivial.

Recessions are caused by powerful people panicking and taking actions that turn small downturns into huge economic uncertainty among the masses. Stability builds strong economies; instability makes them weak. It really is that simple.

That is absolutely ridiculous. You can't possibly be that naive.
are you saying there are people in power that are disaster capitalists who engineer circumstances to give themselves opportunity to extract wealth from the ‘misfortune’ of others?

I feel that you vastly overestimate the competence of humans!

**Rosebuddy**

NinthMusketeer wrote:
I feel that you vastly overestimate the competence of humans!

Some people can, in fact, be competent or even very competent. Plus you don't have to be impressively competent to do something that a system is set up to do anyway, just... competent. It isn't necessarily a high bar to pass.

**NinthMusketeer**

I agree, it isn't.

**Easy E**

gorgon wrote:
Vulcan wrote:
In the end, all the talk about profit margins and dividends and stock valuations and all the other trivialities are... well, trivial.

Recessions are caused by powerful people panicking and taking actions that turn small downturns into huge economic uncertainty among the masses. Stability builds strong economies; instability makes them weak. It really is that simple.

That is absolutely ridiculous. You can't possibly be that naive.

I am listening. Tell me more.

Economics was never my focus, so I am open to learning.

**Vulcan**

Easy E wrote:
gorgon wrote:
Vulcan wrote:
In the end, all the talk about profit margins and dividends and stock valuations and all the other trivialities are... well, trivial.

Recessions are caused by powerful people panicking and taking actions that turn small downturns into huge economic uncertainty among the masses. Stability builds strong economies; instability makes them weak. It really is that simple.

That is absolutely ridiculous. You can't possibly be that naive.

I am listening. Tell me more.

Economics was never my focus, so I am open to learning.

Economics make more sense when you pair it with group psychology and a good background of economic history. The basics are 'more people working = good, fewer people working = bad', and, as I said above, stability builds strong economies while instability makes them weak.

Instability can be caused by many things, but what they all have in common is people stop spending. Why? This is where psychology comes into play. They're worried they'll need the money to cover basics later. Thus, no new spending. This puts people out of work (fewer people working = bad), and causes a downward spiral. It doesn't matter WHAT caused that instability - stock market crash, war, inflation and interest rates, terrorist attacks, housing bubbles, or even just gross racism and racial inequality a la South Africa, this is what happens.

Likewise, in stable areas people are confident they will have a job tomorrow, so they spend freely (but hopefully not irresponsibly, as irresponsible spending causes credit crises, another source of instability...). Thus there is more opportunity to find work (more people working = good), so there is more available to purchase. Thus, really stable countries like Switzerland have strong economies even without vast natural resources or large populations.

**Bookwrack**

That's one of the reasons why extensive government austerity during economic downturns is such a terrible idea. Greece illustrates just how bad this can be very well.

Government funding drive so many big economic areas, like infrastructure and construction, that suddenly tightening the belt when the private sector is also tightening the belt is massively devastating. Not to mention, at the core of it, since government controls the levers of economy, they can keep things moving until the private sector starts to recover.

The second thing is that austerity measures also largely target support programs, which makes the contraction of basic household spending even worse as people are now also trying to conserve money to account for a lack of a safety net. Why this is a bad idea is because necessities like food are the bottom of the economic pyramid - people will always need to eat, and with how broad and foundational food sale is, one of the ways you help reverse and recover from an economic downturn is making sure that money keeps flowing up into the economy from necessity sales. Kicking blocks out of the foundation just makes things above it even worse.

Looking at how bank runs used to happen (and amusingly, the original Mary Poppins film has a not too bad example of this) is a good illustration of that kind of economic panic psychology at work. Just a rumor of problems with a bank could have people start pulling all their money out, fearful that the bank would fail and they'd lose it all. Which would trigger more people to pull their savings out, until the bank ran out of money and then did fail because of the run on it.

Thankfully, with modern regulation and insurance, that's no longer something that happens, but the inertia of panic in the stock market can have the same cumulative effect.