Circle your calendars for Thursday, July 28. That’s the date that the U.S. Bureau of Economic Analysis will issue its findings on growth in the second quarter of 2022. Growth in the first quarter was down 1.4% and, if there are two consecutive quarters of negative growth, the U.S. will meet the technical definition of a recession. Currently, if you ask five different economists about our chances, you’ll get five different answers – but the general consensus has pegged our chance for a recession between 30-50% over the next year and a half.
So, will it, or won’t it happen? And if it does, how will that affect the entrepreneurial industry? FranNet went looking for some reassuring answers…
An Economy of Extremes
When you assess our current economic climate, considering the fact that we’re still recovering from a once-in-a-lifetime (we hope) global pandemic, there are definitely some extremes to point out. The nightly newscasts are shrill with reminders of our runaway inflation rate – now the highest it’s been in four decades. Above all else, this inflation has had an adverse effect on Americans right where it hurts the most – household budgets. But one might also point to another extreme – the fact that unemployment levels are at a 50-year low. In fact, non-farm payroll jobs actually rose by 372,000 in June, smashing expectations.
Triggers
If the U.S. does slide into a recession, what are the likely triggers? Three factors, really. The ongoing conflict in Ukraine negatively impacting gas prices, the Fed’s planned interest rate hikes, and a slowing economy – though the final example has a murky definition at best. Driven by inflation, prices for everyday goods and services are clearly higher – but this is also driven by strong consumer demand, a factor not typically linked to looming recessions. Consumer spending actually rose 9% in June.
What to Expect (If It Happens)
If the U.S. does meet the criteria for the analyst’s description of a recession, how might it affect the entrepreneurial industry? If corporations respond to the news by downsizing their workforces, as they typically do, then there should be an increased pool of fed-up job-seekers ready to strike it out on their own. But adversely, commercial lending for small business development could easily tighten up, with rising interest rates on term loans already a certainty.
Recessions are a part of our normal economic cycle in the U.S., a factor to be expected after a period of sustained growth (as we’ve seen in the past 1.5 years). But if the franchising industry performs like it did during a much-more severe recessionary period – 2008-2009 – the entrepreneurial industry should fare just fine. A 2013 white paper, “Entrepreneurship, Economic Conditions, and the Great Recession”, published in the Journal of Economics and Management Strategy, investigated how the industry responded to the worst economic downturn since the Great Depression. The bottom line summary was presented as such:
“The Great Recession caused many businesses to close their doors or file for bankruptcy protection, but the rapid rise in unemployment also drove an increase in entrepreneurship. For many people across the U.S., the potential opportunities from opening a new business outweighed the alternatives, despite slumping demand and tight credit.”
Whether you’re concerned about a looming recession or not, FranNet can partner with you to help you determine the perfect match in a franchise business opportunity. Getting started is simple and involves setting up a no-cost, no-obligation appointment with one of our qualified FranNet representatives. Not sure what type of business you were meant to own? That’s fine, too – you just need to reach out and talk with one of our franchise experts today! Together, we can find a business opportunity that aligns with your lifestyle and income-oriented goals.