With recent tax cuts, low interest rates, and productive spending, the US economy is currently in a strong position. Yet in recent months, financial experts have been warning of a possible economic downturn. Cyclical upturns and downturns are a normal part of a free market economy, but those low points can still have consequences for small businesses. No one can perfectly predict when an economic slowdown will begin or how severe it will be, but experts estimate negative economic trends emerging as early as 2019. Such a downturn would likely entail decreased value in the stock market, higher interest rates, and lower levels of consumer spending. All business owners should stay informed and be prepared for any economic climate. Here are a few indicators of economic recession and what you can do to insulate your business against the negative effects.

Know the Signs

Certain market trends typically signal economic downturns. Many finance-focused publications and news outlets regularly report on these trends. Keep yourself informed, and seek information from a variety of sources to ensure it is accurate and up to date. Here are a few examples.

• Declines in Income and Consumer Spending. When an economy grows, individual incomes grow steadily as well. And while saving is a necessary practice for smart money management, a robust economy needs consumers to continue to spend money as their income grows. Consistent declines in those spending levels may signal an upcoming recession. Specific industry forecasts can signal these trends; the automobile industry, for example, is forecasted to experience a sales decline in 2018.
• Increased Charge-off Rates. Prior to a recession, you may hear discussion of higher charge-off rates, or the level of debt that creditors have determined they will not be able to collect from borrowers. Instability in credit card lending overall is often interpreted as a sign that the economy may be in decline.
• Stock Market Volatility. Like the economy in general, dips and gains in the stock market are normal. But major drops may be a signal that investors are being more conservative in response to anticipated risk on the horizon.

Make a Plan

Rain or shine, smart business owners maintain a contingency plan for the worst possible outcomes. Here are a few questions you might discuss with your team in anticipation of a market decline or decrease in customer spending ability:

• Do you have more affordable products/services to offer customers as alternatives in a tough economy?
• For how long is your capital secure? Would you be able to withstand increased interest rates a few years down the road?
• Businesses are often restricted in hiring during economic recessions. Do you have all the key people in place needed to weather such a storm?

References

Conerly, Bill. 8 Sep, 2017. Economic forecast 2018-2019: Consumer spending grows slowly. Forbes.com. Available at https://www.forbes.com/sites/billconerly/2017/09/08/economic-forecast-2018-2019-consumer-spending-grows-slowly/#2c4d9d013ba7.

Egan, Matt. 22 Feb 2018. Hedge fund billionaire: 70% chance of recession before 2020 election. Money.cnn.com. Available at http://money.cnn.com/2018/02/22/news/economy/recession-election-ray-dalio-2020/index.html.

Simson, Walter. 25 April 2018. A recession threatens. Do these 3 things to protect your business. Inc.com. Available at https://www.inc.com/walter-simson/a-recession-threatens-do-these-3-things-to-protect-your-business.html?cid=search.

Winton, Neil. 28 Dec 2017. US car sales will slip a bit in 2018, but things could get grim after that. Forbes.com. Available at https://www.forbes.com/sites/neilwinton/2017/12/28/u-s-car-sales-will-slip-a-bit-in-2018-but-things-could-get-grim-after-that/#7632795f7809.