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Central banks walk inflation-recession tightrope

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1 year ago

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Investors fear that while rate increases are needed, they could put the brakes on economic growth if the tightening of monetary policy becomes too aggressive
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Central banks have ramped up their battle against runaway inflation, a necessary remedy that could have the adverse side effect of tipping countries into recession, analysts say.

Just this past week, the US Federal Reserve announced its biggest interest rate hike in almost 30 years, followed by the fifth straight increase by the Bank of England and the first in 15 years in Switzerland.

“This week was a first. The craziest in my experience,” said Frederick Ducrozet, chief economist at Pictet Wealth Management.

The moves rattled stock markets as investors fear that while the rate increases are needed, they could put the brakes on economic growth if the tightening of monetary policy becomes too aggressive.

“Recessions are increasingly likely as central banks race to dramatically raise rates before inflation spirals out of control,” said Craig Erlam, an analyst at online trading platform OANDA.

Capital Economics, a research group, said it does not anticipate a recession in the United States.

“But the Fed is deliberately tempering demand in order to reduce price pressures. This is a difficult line to tread and there is clearly a risk that it goes too far and the economy tips into recession,” it said in a note.

Emerging countries could be collateral victims from rate hikes. The dollar rises when the US Fed raises its rates.

“A strong dollar will complicate (debt repayments) of countries with deficits, which borrow often in that currency,” Ducrozet said.

– Swiss surprise –

Central banks had insisted last year that inflation was only “transitory” as prices were driven up by bottlenecks in supply chains after governments emerged from lockdowns.

But energy and food prices have soared in the wake of Russia’s invasion of Ukraine, pushing inflation higher and prompting economists to lower the world’s growth prospects for this year.

This has left central banks with no other choice but to move more aggressively than planned.

Australia’s central bank raised rates more than expected earlier this month while Brazil last week lifted its benchmark rate for the 11th straight time. More hikes are looming in the United States and Europe.

But it is the Swiss National Bank that caused the biggest shock on Thursday when it announced a rate increase of 0.5 percentage points, the first since 2007.

The SNB had focused on keeping the Swiss franc from being too strong until now.

“The actions of the SNB are notable in that they mark a significant shift in policy (away) from a very dovish position,” said Michael Hewson, chief market analyst at CMC Markets UK.

The European Central Bank has been slower to act than its peers. It is putting an end to its massive bond-buying scheme and will finally raise rates next month for the first time in a decade.

The eurozone faces another problem: The yields paid by its governments to borrow money have surged, with indebted countries such as Italy being charged a premium compared to Germany, a safer bet for investors.

This “spread” revived memories of the eurozone’s debt crisis, prompting the ECB to hold an emergency meeting on Thursday after which it said it would design a tool to prevent further stress in the bond market.

The Bank of Japan bucked the global trend on Friday as it stood by its decision not to raise its rate, sending the yen close to the lowest level against the dollar since 1998.

But even the Bank of Japan could adjust its policy, said Stephen Innes, managing partner at SPI Asset Management.

“BoJ members are considering public dissatisfaction with inflation and the rapid depreciation of the yen,” Innes said.

“While they plan to maintain the current easing policy, they may look to make some tweaks to support the currency,” he said.

– No immediate fix –

Consumers will have to be patient before they see the rate hikes have an effect on prices.

ECB chief Christine Lagarde said it bluntly when announcing plans for a rate increase next month: “Do we expect that July interest rate hikes will have an immediate effect on inflation? The answer to that is no.”

Central banks do not have control over some of the problems that are lifting inflation, such as soaring energy and food prices, and the supply chain snarls.

Capital Economics said energy and food prices accounted for 4.1 percentage points of the 7.9 percent rise in consumer prices in major advanced economies over the past year.

It expects oil, gas, and agricultural commodity prices to start falling later this year, which would bring inflation down sharply, but core inflation rates will remain elevated.

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1 in 5 companies founded in 2021 closed within the year—a story all too familiar in the US

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6 days ago

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September 18, 2023

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PlanPros investigated what it takes for a business to make it through its first year—a milestone that 1 in 5 companies don't achieve.
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Whether a startup is successful in its first year depends on a variety of factors—from industry type and location to funding and money management strategies. PlanPros investigated what it takes for a business to make it through its first year—a milestone that 1 in 5 companies don’t achieve.

Entrepreneurship is a core tenet of American culture. As many as 55% of Americans have started at least one business in their lifetime, according to a 2019 survey by the Global Entrepreneurship Monitor consortium at Babson College. In fact, there are over 33 million small businesses—which have fewer than 500 employees—in operation today according to estimates from the Small Business Administration. However, the Bureau of Labor Statistics reports that since 1994, about 20% of new businesses have not survived their first year.

The success of a small business affects more than just the business owners’ livelihood. According to the SBA Small Business Facts Report, small businesses are responsible for 2 in 3 jobs created in the past 25 years. Additionally, the SBA estimates that small businesses are responsible for about 44% of all economic activity in the United States.

Market research

According to a 2022 Skynova survey of 492 startup founders, 58% said they wished they had done more market research before starting their business. Put simply, market research involves evaluating how likely a product or service is to be received well by its intended customers.

Where a startup is based can have a significant effect on its finances. Business taxes vary across states, as does the availability of various government grant and loan programs designed to aid small businesses. Residents’ purchasing power also ranges geographically. The first-year failure rate for small businesses by state ranged from 18.2% to 36.6% in 2019, the most recent data available—California had the lowest first-year failure rate, while Washington-based startups faced the highest first-year failure rate.

Startups can face certain advantages and disadvantages depending on the nature of their industry as well. According to the Small Business Funding lending agency, small businesses in the health care industry have the highest chance of surviving to at least their fifth year at 60%. Conversely, small businesses in the transportation industry have the lowest chance of surviving through their fifth year at 30%.

Funding and well-managed cash flow

The primary reason new businesses fail is due to a lack of cash or available financial support in its absence, according to the aforementioned Skynova report. In 2022, 47% of startup failures were attributed to a lack of financing or investors, while running out of money contributed to 44% of failures in the same year. A 2019 study funded by the SBA of 1,000 startup small business owners attributes 82% of startup failures to cash flow problems and mismanagement. These data point out the importance of adhering to a strict budget and limiting expenses as much as possible in the first year.

It is also important to identify potential sources of funding or support in advance of any immediate need. This can help prevent running into unsustainable growth. Many government programs exist to help startups survive, including state and federal grants, some of which are designated for certain demographics and industries. 

Even after a business is fairly well established, it is important to monitor cash flow closely. Businesses need to survive well beyond just the first year. According to data from the Bureau of Labor Statistics, roughly half of small businesses fail within five years. After 15 years, about 3 in 4 small businesses will have failed.

But the end of a company is not necessarily the end of entrepreneurship for every small business owner. A study by University of Michigan and Stanford economists suggests that business owners who start a second business after their first failures are more likely to succeed on their second attempt.

Story editing by Jeff Inglis. Copy editing by Tim Bruns.

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Consumer retail spending holds steady as recession worries drag on

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1 week ago

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September 15, 2023

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Shopdog analyzed spending data from the Census to illustrate how American consumers are holding up under continued inflation.  
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Spending for in-person and online goods and services has moderated over the past year after seeing outsized growth during the early years of the COVID-19 pandemic.

The decline in sales growth has forced some retailers to roll out discounts. Others warn sales could drop further as consumers feel the squeeze of college debt payments returning this fall and still-rising prices for everything from weekly groceries to back-to-school clothing.

Shopdog analyzed spending data from the Census to illustrate consumers’ reaction to inflated prices and higher borrowing costs in 2023.

Retail sales data can offer broad inferences about the spending habits of consumers in the U.S. economy and can serve as an indicator of economic health. Business leaders and Federal Reserve officials watch the data closely for signs that consumers could be struggling with their finances.

The COVID-19 pandemic and job loss caused the economy to contract rapidly and enter a recession, briefly hurting retail sales. With the help of stimulus checks and enhanced unemployment payments, Americans bounced back—and bought a ton of stuff: sporting goods, electronics, furniture, and new homes. And as COVID-19 vaccines rolled out, consumers shifted to spending on previously delayed travel.

Throughout 2021, a flood of stimulus money and rapidly rising profits contributed to a red-hot economy in which prices were rising faster than at any time since the 1980s. By 2022, Federal Reserve officials began raising interest rates in an attempt to cool down rising prices. So far in 2023, growth in sales has started to slow as consumers muddle through an increasingly expensive world.


A line chart with two trend lines. At the bottom, e-commerce sales as a portion of overall retail sales show a slight growth trend. At the top of the chart, a line for retail spending in store shows sales growth plateauing.

Dom DiFurio // Shopdog

Pandemic boom in the rearview as inflation erodes spending power

Census data shows retail sales growth has slowed since federal officials began taking their fight against inflation seriously last summer. 

Overall inflation was still elevated at 3.2% year over year in July, stubbornly higher than the 2% goal Federal Reserve officials want to achieve. The Fed began raising its benchmark interest rates in April 2022 to make it more expensive for consumers and businesses to borrow money for things like new business, a home mortgage, or a new vehicle. 

When the Fed raises its interest rates, banks follow. A monetary policy like this aims to slow down an economy flush with cash so prices grow slower. It’s a policy experts argue causes necessary pain for consumers in the short term to avoid perpetual inflation in the long term.

So far, the Fed has seen inflation cool from a modern high of 9% last year, but in late August, officials said they need to see it decrease further before they pause rate hikes.

A line chart showing ecommerce sales as a percentage of overall retail sales. The trend line spikes above 15% in 2020, then comes down a few percentage points in the following years, returning to upward growth in 2023.

Dom DiFurio // Shopdog

Online retail spending is up 7.5% over summer 2022

Even as overall spending flattens, Americans’ online shopping habits have reverted to pre-pandemic trends. Consumer spending has steadily shifted from retail to e-commerce since Jeff Bezos had the idea to sell books online in 1994. That steady growth got a big boost in 2020 when online shopping often became the only way to spend money.

After correcting downward as shoppers ventured out of their homes, the portion of retail sales happening online is growing again at pre-pandemic rates despite the overall challenges faced by consumers.

However, signs are emerging from retailers that the typical American may be unable to keep spending on goods and services the same way in the second half of 2023.

A couple of shoppers inside a Dick's Sporting Goods store.

QualityHD // Shutterstock

Stalled spending growth is cold comfort for nervous small retailers

Retail giant Walmart is raising its profit expectation through the end of the year, reporting gains in e-commerce sales. However, their projections starkly contrast with others in the retail space that are beginning to report gloomy forecasts.

Big sportswear retailers such as Dick’s Sporting Goods, which usually benefit from a surge in sales during back-to-school season, have cut their profit expectations for the rest of the year.

And optimism is low, according to a 2022 industry report by the National Federation of Independent Businesses, which represents the interests of America’s small businesses. Most small businesses believe the country is already in a recession despite no official call by the National Bureau of Economic Research, and they expect lower sales through the end of the year.

Story editing by Ashleigh Graf. Copy editing by Kristen Wegrzyn.

This story originally appeared on Shopdog and was produced and
distributed in partnership with Stacker Studio.

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The county in every state with the most new business applications

Published

2 weeks ago

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September 11, 2023

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PlanBuildr used Census Bureau data to find the county in each state with the most business applications per capita in 2022.
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Entrepreneurship emerged in a big way over the past three years, and founders are not slowing down.

To get a more comprehensive view of where new businesses may have the most impact in coming years, PlanBuildr used Census Bureau data to find the county in each state with the most business applications per capita in 2022. 

Business applications have fallen from highs in 2021 but remain well above pre-COVID-19 pandemic levels at over 400,000 applications per month. There were a little under 5.1 million business applications in 2022, compared to a record-breaking 5.4 million in 2021 and 4.4 million in 2020. Through June, there have been 2.65 million applications, meaning 2023 is on pace to rival the 2021 spike.

Prior to the pandemic, entrepreneurship had been in a lull for decades. In 2018 and 2019, a typical month would see fewer than 300,000 business applications, and in prior years the levels were even lower, Bureau of Labor Statistics data shows. Now, entrepreneurs aren’t letting fears of a recession stop them. In July 2023 alone, more than 469,000 people applied for employer identification numbers—the primary way the government measures small business applicants—marking a 0.5% increase from June.

Additionally, small businesses and startups continue to grow jobs, increasing overall employment despite high-profile layoffs at larger corporations. Nearly half of all workers have jobs at small firms, so continued entrepreneurship keeps the job market strong. What’s more, the pioneering spirit keeps overall economic productivity strong.

Business owners told the New York Times their experiences in the pandemic had “recession-proofed” their businesses. Now they know how to pivot and survive while financially strapped. But interest rates are up, and investors have pulled back, raising the stakes for new business owners.

Groundbreaking companies, like Uber and Airbnb, have emerged from past recessions. While consumers may be more hesitant, hiring is typically easier, and business costs are less expensive amid downturns. From offering new products to creating jobs to upholding economies, new businesses create ripples across their communities.

Read on to see which county in your state saw the most businesses set the groundwork to build their legacies. The data used on new business applications are tallied from applications for employer identification numbers from the Census Bureau. States and counties that allow business owners and operators to incorporate without residing locally may have inflated per capita numbers. Counties with fewer than 1,000 residents were excluded from the analysis.

 


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Alabama: Mobile County

– 2022 applications: 9,792 (23.8 per 1,000 residents)
– 2021 applications: 8,782 (21.3 per 1,000 residents)

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Alaska: Skagway Municipality

– 2022 applications: 29 (26.8 per 1,000 residents)
– 2021 applications: 10 (8.8 per 1,000 residents)

Sean Pavone // Shutterstock

Arizona: Maricopa County

– 2022 applications: 83,305 (18.3 per 1,000 residents)
– 2021 applications: 83,458 (18.6 per 1,000 residents)

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Arkansas: Phillips County

– 2022 applications: 328 (21.4 per 1,000 residents)
– 2021 applications: 347 (21.9 per 1,000 residents)

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California: Alpine County

– 2022 applications: 21 (17.6 per 1,000 residents)
– 2021 applications: 23 (18.6 per 1,000 residents)

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Colorado: Pitkin County

– 2022 applications: 671 (39.8 per 1,000 residents)
– 2021 applications: 727 (41.9 per 1,000 residents)

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Connecticut: Western Connecticut Planning Region

– 2022 applications: 11,118 (17.8 per 1,000 residents)
– 2021 applications: Not available: Prior to 2022, data were collected for Connecticut’s former counties rather than its new planning regions. (0.0 per 1,000 residents)

Nagel Photography // Shutterstock

Delaware: Kent County

– 2022 applications: 12,961 (69.3 per 1,000 residents)
– 2021 applications: 11,552 (62.7 per 1,000 residents)

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Florida: Miami-Dade County

– 2022 applications: 127,895 (47.8 per 1,000 residents)
– 2021 applications: 136,137 (51.0 per 1,000 residents)

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Georgia: Fulton County

– 2022 applications: 50,118 (46.6 per 1,000 residents)
– 2021 applications: 60,986 (57.4 per 1,000 residents)

pikappa51 // Shutterstock

Hawaii: Maui County

– 2022 applications: 2,778 (16.9 per 1,000 residents)
– 2021 applications: 2,935 (17.8 per 1,000 residents)

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Idaho: Teton County

– 2022 applications: 298 (23.8 per 1,000 residents)
– 2021 applications: 308 (25.1 per 1,000 residents)

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Illinois: Cook County

– 2022 applications: 93,690 (18.3 per 1,000 residents)
– 2021 applications: 118,523 (22.9 per 1,000 residents)

Sean Pavone // Shutterstock

Indiana: Marion County

– 2022 applications: 22,226 (22.9 per 1,000 residents)
– 2021 applications: 25,352 (26.1 per 1,000 residents)

stivanderson // Shutterstock

Iowa: Jefferson County

– 2022 applications: 221 (14.1 per 1,000 residents)
– 2021 applications: 225 (14.3 per 1,000 residents)

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Kansas: Lane County

– 2022 applications: 45 (28.9 per 1,000 residents)
– 2021 applications: 22 (14.0 per 1,000 residents)

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Kentucky: Jefferson County

– 2022 applications: 12,082 (15.6 per 1,000 residents)
– 2021 applications: 12,973 (16.7 per 1,000 residents)

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Louisiana: Orleans Parish

– 2022 applications: 9,408 (25.4 per 1,000 residents)
– 2021 applications: 12,809 (34.0 per 1,000 residents)

Joseph Sohm // Shutterstock

Maine: Cumberland County

– 2022 applications: 3,670 (11.9 per 1,000 residents)
– 2021 applications: 3,803 (12.4 per 1,000 residents)

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Maryland: Garrett County

– 2022 applications: 748 (26.2 per 1,000 residents)
– 2021 applications: 579 (20.1 per 1,000 residents)

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Massachusetts: Nantucket County

– 2022 applications: 433 (30.0 per 1,000 residents)
– 2021 applications: 344 (23.7 per 1,000 residents)

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Michigan: Wayne County

– 2022 applications: 39,328 (22.4 per 1,000 residents)
– 2021 applications: 47,565 (26.8 per 1,000 residents)

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Minnesota: Cook County

– 2022 applications: 94 (16.5 per 1,000 residents)
– 2021 applications: 81 (14.4 per 1,000 residents)

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Mississippi: Coahoma County

– 2022 applications: 774 (38.3 per 1,000 residents)
– 2021 applications: 754 (36.4 per 1,000 residents)

Sean Pavone // Shutterstock

Missouri: St. Louis city

– 2022 applications: 6,422 (22.4 per 1,000 residents)
– 2021 applications: 7,803 (26.6 per 1,000 residents)

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Montana: Flathead County

– 2022 applications: 4,219 (37.7 per 1,000 residents)
– 2021 applications: 3,521 (32.4 per 1,000 residents)

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Nebraska: Boyd County

– 2022 applications: 33 (19.0 per 1,000 residents)
– 2021 applications: 18 (10.1 per 1,000 residents)

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Nevada: Clark County

– 2022 applications: 49,369 (21.3 per 1,000 residents)
– 2021 applications: 55,475 (24.2 per 1,000 residents)

Wangkun Jia // Shutterstock

New Hampshire: Rockingham County

– 2022 applications: 3,582 (11.2 per 1,000 residents)
– 2021 applications: 3,559 (11.2 per 1,000 residents)

Mihai_Andritoiu // Shutterstock

New Jersey: Essex County

– 2022 applications: 18,114 (21.3 per 1,000 residents)
– 2021 applications: 21,329 (25.0 per 1,000 residents)

Jimack // Shutterstock

New Mexico: Santa Fe County

– 2022 applications: 4,338 (27.9 per 1,000 residents)
– 2021 applications: 3,683 (23.7 per 1,000 residents)

pisaphotography // Shutterstock

New York: New York County

– 2022 applications: 50,149 (31.4 per 1,000 residents)
– 2021 applications: 53,217 (33.7 per 1,000 residents)

digidreamgrafix // Shutterstock

North Carolina: Mecklenburg County

– 2022 applications: 29,600 (25.8 per 1,000 residents)
– 2021 applications: 34,052 (30.2 per 1,000 residents)

Traveller70 // Shutterstock

North Dakota: Dunn County

– 2022 applications: 88 (21.9 per 1,000 residents)
– 2021 applications: 62 (15.4 per 1,000 residents)

Sean Pavone // Shutterstock

Ohio: Franklin County

– 2022 applications: 24,370 (18.4 per 1,000 residents)
– 2021 applications: 26,733 (20.3 per 1,000 residents)

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Oklahoma: Oklahoma County

– 2022 applications: 14,955 (18.6 per 1,000 residents)
– 2021 applications: 16,158 (20.2 per 1,000 residents)

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Oregon: Hood River County

– 2022 applications: 409 (17.0 per 1,000 residents)
– 2021 applications: 352 (14.6 per 1,000 residents)

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Pennsylvania: Philadelphia County

– 2022 applications: 29,166 (18.6 per 1,000 residents)
– 2021 applications: 42,298 (26.6 per 1,000 residents)

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Rhode Island: Providence County

– 2022 applications: 7,055 (10.7 per 1,000 residents)
– 2021 applications: 7,450 (11.3 per 1,000 residents)

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South Carolina: Charleston County

– 2022 applications: 10,138 (24.2 per 1,000 residents)
– 2021 applications: 10,561 (25.5 per 1,000 residents)

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South Dakota: Haakon County

– 2022 applications: 37 (20.3 per 1,000 residents)
– 2021 applications: 19 (10.4 per 1,000 residents)

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Tennessee: Davidson County

– 2022 applications: 15,302 (21.6 per 1,000 residents)
– 2021 applications: 15,871 (22.6 per 1,000 residents)

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Texas: Glasscock County

– 2022 applications: 30 (25.8 per 1,000 residents)
– 2021 applications: 13 (11.4 per 1,000 residents)

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Utah: Summit County

– 2022 applications: 1,291 (30.0 per 1,000 residents)
– 2021 applications: 1,457 (33.8 per 1,000 residents)

Joseph Sohm // Shutterstock

Vermont: Lamoille County

– 2022 applications: 374 (14.3 per 1,000 residents)
– 2021 applications: 322 (12.3 per 1,000 residents)

OJUP // Shutterstock

Virginia: Petersburg city

– 2022 applications: 797 (23.9 per 1,000 residents)
– 2021 applications: 1,017 (30.5 per 1,000 residents)

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Washington: San Juan County

– 2022 applications: 273 (14.6 per 1,000 residents)
– 2021 applications: 356 (19.1 per 1,000 residents)

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West Virginia: Jefferson County

– 2022 applications: 646 (11.0 per 1,000 residents)
– 2021 applications: 569 (9.7 per 1,000 residents)

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Wisconsin: Milwaukee County

– 2022 applications: 18,019 (19.6 per 1,000 residents)
– 2021 applications: 19,542 (21.1 per 1,000 residents)

Ems Images // Shutterstock

Wyoming: Sheridan County

– 2022 applications: 22,389 (697.6 per 1,000 residents)
– 2021 applications: 17,043 (538.2 per 1,000 residents)

Data reporting by Paxtyn Merten. Story editing by Jeff Inglis. Copy editing by Paris Close.

This story originally appeared on PlanBuildr and was produced and
distributed in partnership with Stacker Studio.

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