In
last month’s article, I admitted to:
- Being generally pleased with my projections for the economy over the last several years … especially as it has impacted residential real estate investors and tenants.
- Recognizing signs that the market is slowing and recession is impending as we approach the end of the peak economic cycle we’ve enjoyed these past nine years or so.
- Having murky vision as I gaze into my crystal ball and unable to predict when the downturn will surface.
That said, there are four leading indicators that support my notion that alert landlords, tenants and residential rental investors should be aware of and monitor as they evolve.
- Delinquent Car Loans
- Home Mortgage Delinquencies
- Slowing Home Price Growth
- Rising Rents
Each is evidence of a trend that we are approaching a significant decline in the U.S. economy.
So while the timing of the next financial slump is undefined, being prepared is your best protection.
Get Ready to Get Ready
While the immediate expert best-guesses don’t foster short-term alarm, we all do know that the next phase of the business cycle is a recession. There is no telling how soon and how severe it may be, but it’s looming somewhere out there on the horizon.
So what should prudent landlords, business owners and managers remain alert to? In addition to the above statistics, there may be additional warning signs that signal the potential of the economy edging toward recession. Here is a sampling of what to look for.
- A reversal in the growing demand for labor, or a reversal in the record-low rate of layoffs, may indicate that the economy is in a downward trajectory.
- Businesses showing signs of significant cuts in spending could have an after-effect contraction of business growth and profitability.
- If the economy begins to overheat escalating inflation, the Fed may raise rates more quickly than anticipated which could trigger a recession.
In anticipation of having to react to an economic downturn, position your company to not just survive, but to thrive. If you want to grow your business during a recession, you need to be ready when it comes. Consider these steps to initiate now.
- Position your firm for strength. Concentrate on a strong balance sheet with cash reserves and limited or no debt. Examine and tighten up processes and personnel to enhance productivity.
- Review your product/services offerings. Will they satisfy your customer needs in the event of an economic downturn? If not, consider a scaled-down or redesigned offering that will align with the new economic reality.
- Invest in research and development so you are ready to launch new products and services as the economy begins the next expansion period in the business cycle. That will yield a strong competitive product advantage during the upswing.
- Identify the customers of your weakest competitors. Their best customers can be your best prospects, especially if your competitor’s customer service has deteriorated due to the downturn.
- Pinpoint your most critical suppliers and distributors, and assess the risk to your business if they falter or fail due to the economic downturn. Then, examine ways that you may help them weather the storm for mutual benefit. Of course, plan for contingency resources if needed.
- Carefully consider your human resources needs. Invest in training for your “A” players to retain them and enhance productivity. Due to the downturn, many good people will be laid off. Others may still have a job, but as skilled workers, they may be unhappy working in a stressed environment with a struggling company. Your opportunity is to identify and attract those talented employees.
Summary
So it’s not a matter of “if” … it’s a matter of “when” the next phase of the recurring business cycle will surface. The current upswing, while impressive, has gone on long enough to lull some people into a false sense of complacency. Without a doubt, it is a time to
hope for the best and plan for the worst. To do otherwise puts landlords, business owners, managers and investors at considerable risk.
