by Daniel Kittell | Accounting News, Construction, Industry - Construction, News, Newsletter
Understanding how economic trends influence construction can provide valuable insights for businesses and professionals in the field. For instance, high interest rates and slower economic growth will put increasing pressure on construction and manufacturing this year. Here’s a comprehensive look at how the current economic landscape is likely to impact construction in 2024.
Inflation and Interest Rates
The economy is still experiencing inflation pressures from energy prices, wages, and consumer spending, which impacts project financing.
Additionally, with interest rates playing a pivotal role in construction financing, the Federal Reserve’s actions this year regarding cutting interest rates hold significant sway. Lower interest rates will stimulate borrowing for construction projects, reducing overall borrowing costs for businesses and clients. This creates incentives for investment in construction ventures, particularly in the residential sector.
Supply Chain
Late last year, construction companies were still facing supply chain issues, but construction firms can expect supply chain improvements as the year progresses, which will help reduce delays in construction projects. The pandemic changed communication methods between the construction industry and suppliers, with construction firms adopting communication technologies to streamline material ordering workflows. With access to more complete and speedy information, construction firms are empowered to keep projects on track.
Labor Market
The construction job sector experienced growth last year. However, construction job openings have decreased recently, even though wages have increased by 4.9%. This highlights the importance of competitive pay and innovative training programs to attract and retain employees.
Recession Worries
Higher employment and higher wages create more spending power and add to the supply and demand issues perpetuating a potential recession. With interest rates stalling and contributing to a decrease in project financing power, an economic recession is still top of mind for businesses. While signs at the moment are pointing to a soft landing, the construction industry should still be preparing for economic shifts.
Shifting Geopolitical Landscape
The Israel-Hamas conflict heightens concerns about the possibility of broader tensions in the Middle East, which could potentially impact energy and other raw material prices. U.S. sanctions on Iran might exacerbate these issues, while ongoing tensions between the U.S. and China could contribute to inflationary pressures.
by Jean Miller | Accounting News, News, Newsletter, Small Business
Small businesses are not immune to the effects of broader economic shifts. As highlighted by the pandemic, major global and domestic events have the potential to profoundly influence businesses across the board, regardless of size. In 2024, larger economic conditions and fluctuations could have a significant impact on small businesses. Read on as we delve into four hurdles that have the potential to affect small businesses this year.
Economic Uncertainty
The previous year presented challenging economic hurdles for businesses of all sizes. Surging inflation significantly affected businesses, leading to spikes in overhead expenses and interest rates. Although recent data from the Office for National Statistics (ONS) indicates a gradual decline in monthly inflation rates, they still surpass the government’s targeted 2%. Small businesses will likely feel a greater impact compared to more established businesses, given their absence of cost-saving benefits from economies of scale, which typically provide some breathing room during challenging economic climates.
Political Tensions
Election years can introduce some unpredictability and prompt a certain level of economic insecurity. Businesses and investors may hesitate to make significant decisions until they have clarity on the direction of future policies, which can lead to a slowdown in economic activity. Additionally, campaigns and debates that focus on economic issues can contribute to market volatility.
International Instability
Ongoing geopolitical pressures, such as the conflict in Ukraine and the hostilities between Israel and Hamas, can affect international trade and the overall U.S. economy. These tensions, as well as others around the globe, have the potential to spark trade conflicts and disrupt the international movement of goods and services, potentially resulting in shortages of raw materials and production delays. This, in turn, can escalate import and export expenses, contributing to overall price hikes.
Is a Recession Happening?
This has been the question posed by businesses and consumers since late 2022. A lingering uncertain economic forecast could make companies hesitant to invest in bigger expenses, such as new research, equipment, or real estate. While the Federal Reserve’s incremental interest rate hikes have helped to suppress inflation, whether or not we’ll come out of this economic rollercoaster with a “soft landing” is still a question mark. Small businesses should still be preparing for the possibility of a recession this year.
by Jean Miller | Accounting News, Budget, News
With record high inflation and rising interest rates, an economic recession has been the subject of many conversations lately. Now with two consecutive quarters of a drop in GDP (gross domestic product)—the benchmark many economists use to gauge a recession—the possibility of a serious economic downturn isn’t just fodder for conversation anymore. It’s time to get serious about protecting your finances for a recession. Here’s how you can make sure you’re prepared.
Build Up Your Emergency Fund
It’s widely recommended to have enough savings to cover three to six months of living expenses. The specific amount will depend on your circumstances. For instance, in today’s uncertain economy, you might feel it worthwhile to aim for more than six months. It might seem daunting, but don’t undervalue the effectiveness of small contributions on a regular basis. You can also think about automating your savings contributions for a set-it-and-forget-it approach. Whichever way you go about it, consistent contributions to an emergency fund help to build positive saving habits that will carry into the future.
Pay Down Credit Card Debt
Focus on paying down any high-interest debt. Not only will this help you be more prepared should you get laid off during a recession, but credit card APRs are rising in response to the Federal Reserve’s rate hikes. Knocking out debt could free up critical breathing room in your budget that you could use to boost your emergency fund.
Identify Ways to Reduce Expenses
Start looking at all the ways you spend money, and identify ways you can scale back on discretionary spending (services or items that aren’t necessities—vacations, dining out, cable, spa treatments, etc.). Typically, the guidance is to spend no more than 30 percent of your net income on discretionary purchases. Think about creating a monthly budget in order to stick to this guideline and ensure you’re not overspending.
Stay Invested
It’s tempting when the market is as volatile as it’s been recently to think about cutting back on 401(k) contributions or selling stock investments. Keep in mind, however, that you’re investing for the long term. Stocks rise and fall all the time, and history has proven that bull markets (rising market conditions) last longer than bear markets (falling market conditions).
Rebalance Your Portfolio
While you want to stay invested for the duration of a recession, you might consider rebalancing your investments. Depending on your age, risk tolerance, and investment goals, it may make sense to shift more investments into growth funds, which could potentially experience greater gains when the market rebounds. Be sure to keep in mind that money needed in the short term should not be allocated to these funds as they are high risk.
by Stephen Reed | Accounting News, News
The Covid-19 pandemic gave rise to a surge in Americans starting their own small businesses. Now, two years later, as a possible recession looms amid rising inflation, these business owners are turning their focus to the possibility of a recession. Read on for tips on how new businesses can weather through an economic downturn.
Potential Impact of a Recession
In a recession, consumers cut back on spending, which means demand for goods and services declines, which leads to a decrease in sales for businesses. When there is a steady decline in economic activity and sales, businesses can be forced into the position of needing to lay off employees, or in some cases even shuttering their doors for good.
Additionally, businesses may also face higher costs during a recession as suppliers of raw materials and other goods raise prices in an attempt to counterbalance their own drops in revenue. Higher prices put further financial strain on businesses, leading to more layoffs and closures.
Establish Resilience with Financial Flexibility
If your revenue takes a nosedive, do you have an accessible line of credit or an emergency fund with enough cash on hand to cover your expenses for a period of time? Either of these options will provide your business with some financial flexibility if you experience a temporary decline in sales. Also think about diversifying your sources of revenue. This will lessen your dependence on any one customer or market and help establish more resilience during a recession.
Know Your Risk Factors
Businesses are no strangers to risk factors even in optimal economic times, but during a recession the risks are intensified. You need to be aware of the specific vulnerabilities to your business (i.e., credit risk, supplier risk, operational risk, or financial risk) and establish a suitable plan to address them. This might include diversifying your customer base, suppliers, and range of products; building up your cash reserves; and reinforcing your financial controls.
Evaluate Expenses
As a business owner do you know exactly what you’re spending money on? By doing a self-audit you can identify areas where you can make small but consequential cuts. Pay special attention to things like:
- Subscriptions to apps, periodicals, and software that go unused or don’t bring value to your day-to-day operations
- Recurring expenses such as phone services, utilities, and bank account fees
- Operation costs and advertising
You might consider shopping around to find vendors who can give you the best deal. Remember that small businesses have more negotiating power in a turbulent economy.
Find New Ways to Drive Sales
When you begin to notice a downward trend in revenue, it’s time to look into new ways to drive sales. This could include modifying your marketing efforts, providing discounts, issuing new products or services, adjusting prices, and cross-selling to customers.
Invest for Future Revenue
Even during an economic downturn, small business owners are wise to spend some money upfront to gain longer-term cost savings. It’s especially important to consider if cash you’re currently spending in other areas of your business could be redeployed for the purpose of investing in future business and revenue. For instance, are there portions of your business that could be automized or digitized? Can you switch to an online training course rather than onsite? What about your marketing approach? You’ll need to strategize this one, but communication with customers is key to keeping steady sales. After all, the future of your business relies on maintaining and growing your customer base—in good and bad economic times.
