The U.S. strategy for a soft landing of its economy

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By georgeskef

Business hiring is a good indicator of a soft landing in the economy.

The Federal Reserve wants to see the economy cool in certain areas to combat inflation. Freight railroads, for instance, are seeing shipping volumes decline. Construction companies are cutting equipment purchases. Customers of a vending machine company are negotiating lower prices.

The key to a slowdown that is measured and does not cause inflation, but still doesn’t bring the economy to its knees, lies in the decision of the companies to keep workers on or to let them go. In an economy where mixed signals are often sent, the answer is clear: they prioritize keeping workers. Apple for example, avoids layoffs in spite of economic uncertainty.

All of those retained employees are now spending their salaries, although more slowly. The economy is cooling steadily, but the recession that was expected has not yet happened.

Recent economic data has reinforced the belief that inflation can decline without the U.S. experiencing a recession. The economy has grown over the past few months, thanks to strong consumer spending. According to the Fed’s preferred measure, inflation cooled in June to 3%. The Labor Department reported Friday that wage increases have slowed down, although they are still high.

U.S. stocks indexes rose on Friday. The Dow Jones Industrial Average, S&P 500 Index and the Dow Jones Industrial Average have all risen three weeks in a row.

We’ve already seen the beginnings in disinflation, without any real costs on the labor market. “That’s really good,” said Fed Chairman Jerome Powell on Wednesday, after the central banks decided to increase interest rates to their highest level in 22 years.

He said that his “basecase” was that the Fed’s target of 2% inflation could be achieved “without a really significant recession that would result in large levels of job loss.”

Businesses cross-train their workers and tap into technology

Many economists, business owners and financiers predicted the opposite. They said that high inflation rates and interest rates would cause companies to fire employees, and that newly unemployed people would stop spending, and the economy will spiral downward.

It is different from the years 2007-09 or 2020 when layoffs of workers were common and the U.S. economic system was in recession.

In response to the pandemic, VendingONE of Los Angeles began cutting its 37-person staff by more than half three years ago. After sales began to recover, the company increased its headcount to 25.

Even though the business is slowing down and customers are citing fears of recession to renegotiate their contracts, a vending machine company keeps its employees by retraining them in other areas and using technology to reduce costs.

It began using software to schedule service drivers for machines that needed to be filled or repaired, allowing them to spend less driving time. VendingONE is also restructuring its purchase agreements and adjusting restocking levels using technology. This reduces waste.

Barry Rosenberg, the owner of the company, said: “We’re trying to be more efficient in order to avoid having to lay off staff as much as possible.” He said that it was important to keep the employees the company has, given its smaller headcount.

VendingONE doesn’t make an exception. Vistage Worldwide, an organization that provides business coaching and peer advice, conducted a survey of 670 small-business owners for The Wall Street Journal. Only 7% said they planned to cut their staff this year. In part, small-business owners are reluctant to fire employees because they have close relationships with them. Many small businesses still have difficulty hiring.

The hiring rate for companies of all sizes is slower than it was last year. However, added 278,000 new jobs per month on average through June. Layoffs are rare in most industries, and unemployment rates remain near half-century lows.

Erik Lundh is a principal economist with the Conference Board. He said that if consumers can keep their jobs they will be less likely to cut back on spending. Consumer spending accounts for two thirds of the economy, so higher interest rates could have a less damaging effect.

Lundh stated that “in part, this tightness on the labor market should prevent the economy falling into a more severe, longer lasting recession.”

Many economists expected that the Fed’s aggressive campaign of rate increases would spark a recession in the second half of the year. This has not happened. However, many forecasters predict a cooling for the second half.

Small business spending slowing

The business investment rate rose sharply this spring. This was largely due to a spike in federal spending for chip manufacturing plants, electric vehicle factories and expensive aircraft purchases. Some economists believe that it was only a temporary boost.

Vistage surveyed small business owners in June and found that more than two thirds had cut costs during the past six months. A similar percentage said they planned to do so in the future. Some tactics include finding new suppliers, delaying hires, delaying capital expenditures, and retiring unprofitable products or services.

These strategies allow companies to prepare for a future economic recovery without having to cut jobs.

Ethan Karp is the chief executive officer of Magnet, an organization that provides technical assistance to manufacturers throughout northeast Ohio. “Now there is a sentiment that it is painful to lay off people and nearly impossible to replace them,” said Ethan Karp, chief executive of Magnet, a nonprofit providing technical assistance to manufacturers in northeast Ohio.

Larry Anderson, the chief executive officer of Anderson Construction, a commercial construction company in Camarillo (Calif.), is preparing to batten down the hatches, as some customers of the firm delay projects due to higher interest rates.

He has halted new hiring and is reducing equipment purchases, but he’s also investing in a system to track tools, for example.

He said: “I think we’re either in a depression or headed into one,” he added. He added that Home Depot no longer has a flurry of early morning customers.

Anderson wants to keep his thirty employees busy, even if the business is slow.

He said, “We’re trying to hold on to all of the people that we have.” “We’ll do anything to avoid cutting.” It is much more costly to lay off people and then train them.

Apple’s CEO says: “I consider layoffs a last resort”

Apple avoided the mass layoffs that have engulfed the tech industry. Tim Cook, the CEO of Apple, said that they are managing costs and reducing hiring in some areas while increasing it in others.

Cook stated, “I see layoffs a as a measure of last resort.” You can never say “never”. “We want to manage cost in other ways as much as we can.”

This year, freight railroads retained employees despite a decline in shipping volumes. It is a change from previous practices. Rail operators cut deep during the pandemic, but then struggled when traffic picked up. Executives said that erratic service was one of the results. Railroad operators missed out on extra revenue because they did not have enough train crews.

Orbitform in Jackson, Mich. is keeping its staff, but it’s re-evaluating its phone service and other vendors. It is also increasing inventory when this leads to lower unit costs.

Jake Sponsler is the president of Orbitform. He says that he does not want to hire more employees, but instead tries to manage an increased workload. This includes outsourcing certain standard operations as orders increase and keeping the more profitable custom work at home.

Sponsler explained that the reason for this was to be able to expand rapidly once business picked up again.

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