There’s a lot happening in the economy that we need to be aware of. In order to properly manage our businesses, we’ll need to be ready.
Here’s the information we have so far…
Inflation
The last reading from the December CPI Report went up rather than down. This, and many other factors, caused the Fed to put a hold on interest rate deductions saying that they’re in no hurry to drop rates.
America’s Largest Retailer
Inflation was actually good for Walmart’s Fourth Quarter Earnings where they posted very strong results. But they also reduced their earnings predictions over the next year citing difficulties with tariffs and trade tensions increasing the prices of their products. As a result, America’s largest retailer lost 6.5% on the value of their company in a day.
America’s Largest Banks
JPMorgan and Goldman Sachs also lost 4% of their value that day for the same reason. Economists and investors are worried about what tariffs and difficulties with our trading partners will do to a bank’s ability to earn a profit.
Credit Card Debt Hits New Record
The Federal Reserve Bank of New York is reporting that with holiday spending, Americans are now carrying $1.21T in credit card debt. This is a 7.3% increase over the same period last year.
Housing Market
Sales of existing homes just slid 4.9%.
In order to explain what’s happening, we should take a walk down memory lane.
Let’s remember that during the Covid Era, our government pushed trillions of dollars out to individuals to keep the economy rolling. Whether it was increases in payouts on unemployment, or advances on Child Tax Credits, lots of money went to the average American family.
The majority of that money wasn’t spent creating a nest egg. You couldn’t really go anywhere or do anything, so the money sat in bank accounts.
Once we got through the pandemic, people began spending that nest egg to combat the pressures of Inflation. Now, given what’s happened with credit card balances, its obvious that those nest eggs are gone.
Let me leave you with this…
Wages haven’t kept pace with inflation. Now that individual savings are gone, spending will certainly decrease.
You can’t just keep putting an expensive lifestyle on credit cards. Sooner or later you have to balance the books.
So let’s summarize. There are four things happening at the same time.
1 – Individual spending is going down.
2 – Prices of goods have upward pressure given tariffs and difficulties with trading partners.
3 – They’re cutting government spending.
4 – They’re trying to pass a tax package. It should be noted that this isn’t a major change to the economy, since it’s already in place.
The problem with all of these changes is that it will take time for everything to come together. If they can continue to cut government spending and raise additional capital from tariffs, they should be able to keep taxes low and pay down a substantial part of the deficit.
But it will take time. The next year or even possibly two could be difficult.
We need to go back to watching our numbers like a hawk. Inflation isn’t gone by any wild stretch of the hallucination.
Watch your investments. Many market watchers think we’re going back into a bear market.
Maintain your margins. The profits you save will be your own.
We’re all going to get through this. Let’s get through it together.
Accounting Solutions Ltd. stands ready to complete our mission and purpose of protecting you, your family, and your business. Whether you need Payroll Services, or Accounting and Tax Work, you have but to ask. I’m here and I remain,
Sincerely yours,
Chris Amundson
President
Accounting Solutions Ltd.
773-267-7500
888-310-0300
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