America seems to be holding its collective breath at the moment, wondering whether or not we’re about to go through the dreaded “R” word, Recession. Applying only a strict economic definition, a recession occurs when the U.S. experiences a fall in gross domestic production (GDP) for two successive quarters. How did we do in the first quarter of 2022? Dropped 1.4%. The National Bureau of Economic Research is the organization tasked with certifying an actual recession – and they meet again later this month.
In this FranNet of California blog post, we’re going to look at the current economic conditions and how a recession might affect your entrepreneurial plans.
First, the Bad News…
There is no debate about the runaway inflation rate in the country. It’s now surged 8.6%, to the highest level in four decades. In addition, Wall Street is taking a beating as well, as the S&P 500 is down 20% for the first six months of the year. Where most Americans feel the pinch is the recurring trip to the gas pump, where prices have soared to near $5 a gallon. Lastly, home prices have also skyrocketed, with limited inventory at wildly inflated prices, placing average homebuyers on the outside looking in.
Now, the Good News…
There’s good news? Yes, if you consider the current U.S. unemployment rate of 3.6% — the lowest in 50 years. Employers reported 428,000 new jobs in April, the 16th consecutive month of job growth. Consumer confidence remains fairly strong and spending actually increased 2.7% in May. The Federal Reserve is taking active measures to fight inflation, with a series of rate hikes that already appear to have blunted the rising inflation rate.
Will It or Won’t It?
Ask 10 people about the likelihood of a U.S. recession and you may get 10 nuanced answers. Economists and other pundits seem conflicted about our chances and a recent Bloomberg survey revealed most experts think there’s only a 30% chance. But if and when a recession occurs, it can also be an opportunistic time for certain sectors of the economy – most notably, entrepreneurship.
When the Fed, banking, and financial sectors get to work battling to balance the U.S. economy, rates go up. But the prices attached to goods and services are expected to fall, just as our savings gets a boost. The last time America was in a similar position, we experienced the Great Recession (2008-2009). Yet during that time, entrepreneurship skyrocketed. In a well-sourced report from Robert W. Fairlie at the University of California, Santa Cruz, entitled “How the Great Recession Spurred Entrepreneurship,” the study cites the following:
“…the Great Recession saw the largest increase in entrepreneurship of any period in the study’s 14-year time frame. The formation rate of new businesses went down in 2006, in the lead-up to the recession, and started to increase in 2007 before spiking in 2008. It hit its peak in 2009, when the rate was 17 percent higher than it had been three years before.”
What exactly happened here? Many of the downsized, especially those who happened to be homeowners with equity, took the opportunity to start a business of their own. And if you’re thinking along those same lines, you’ve definitely come to the right place, as this is FranNet of California’s specialty. As experienced franchise consultants, we can help save you time and money in several ways: educating you about franchising, helping you research your business, identifying the right structure and strategic mix of the businesses you are interested in, and introducing you to the franchisors that best fit your criteria. Thanks to our network of resources and contacts, we can even help you find franchise attorneys and other advisors so that you have everything you’ll need to make an informed decision about business ownership.
Our services are no-cost, and no-obligation to you. You can schedule an initial consultation by following this link. With our clients, we typically begin with your personal Entrepreneurial Readiness Profile, a simple, online form that you’ll fill out that provides us with information about your preferences, financial tolerance, and lifestyle goals.
At this point, nobody knows for sure whether or not a recession is in the cards for America. But if it does occur, just know that you have the option to turn it into an opportunity to take charge of your own destiny.