The recession that most economists were predicting by the third or fourth quarter of last year failed to materialize. As a matter of fact, instead of Gross Domestic Product (GDP) falling for two consecutive quarters, we actually had positive growth last year to the tune of 2.6%.
In an era of higher interest rates, a tough jobs market, and wars across the globe, how was this possible? The answer is as basic as any yet rather complicated in scope, but the solution came down to one thing.
Entrepreneuring.
Let’s remember some history. This whole problem began with the pandemic.
The government shut down the economy and boosted it back up with government subsidies. Everything from increased unemployment to PPP Loans and ERC’s pushed trillions of dollars into everyone’s bank accounts.
People wanted to buy things, but there was a shortage of goods and services. From an economic standpoint, we had an increase in demand which pushed up prices in turn creating inflation.
The Fed raised interest rates to counter, but no one figured on the actions of many entrepreneurs who took advantage of the higher prices. Many used whatever means at their disposal to produce more, taking advantage of the higher prices.
Supply Side Economics is usually a thing of mystery and myth that only academics in ivory towers contemplate. The last time our government tried to put this into place was during The Reagan Administration, and it failed miserably.
But this time the entrepreneurs did it all on their own. They over produced which increased demand and actually brought down prices without hurting the labor market.
And like magic, here we are. No recession. I’m still scratching my head wondering how this happened because it isn’t supposed to be possible in this sort of market. But the obvious is unmistakable.
The real question becomes, will it last?
Let me leave you with this.
Your guess is probably better than mine, but in a recent survey of economists by the Wall Street Journal, most predict this year to only have GDP growth around 1%. In other words, our economy won’t actually recess, but it will be extremely sluggish.
At times it might feel as if it has gone negative. Of course, everyone thought we would be in a full blown recession by now, so who knows what will actually happen.
Many of the difficulties are still in place that could tip our economy into the negative. Inflation has ticked back up, the labor difficulties are still simmering, and the wars in Europe and the Middle East are threatening supply chains.
The part that still mystifies me is the real estate market. It’s just not acting the way it should. With interest rates way up, prices haven’t declined in a material fashion. And no one’s talking about it.
The equity markets seem to have plateaued in the past month. Their precipitous rise since last October seems to have run out of gas.
The question becomes, where does this leave us?
When you throw in the fact that we have an election coming, it puts us in a place where all bets are off. Sitting presidents in bad economies don’t get re-elected, but they usually start pushing money back into the economy to make sure it doesn’t recess so they can win.
Will this happen? WIll it not? No one knows.
If there was one clear path, then the advice would be easy, but there isn’t. As such, the only good advice is to remain conservative. At this point, it could go either way.
Horde your cash like a Viking King. Trim the fat. Watch your margins. If you have to raise prices to maintain your profits, get to it. Be careful launching new products or businesses. Don’t get caught with your pants down.
The business you save may be your own.
We’re all going to get through this. Let’s get through it together.
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