Unfortunately, just as the economy was showing signs of improving, a number of factors are causing it to weaken again. Rising food and oil prices, supply chain disruptions due to the Japanese nuclear disaster and a still-horrendous housing market are all to blame. How will it impact your business? Mostly by affecting consumers.
As oil prices have climbed more than 20% this year, high gas prices are slowing the momentum of the recent economic improvements. Gas and food inflation are eating away at Americans’ paychecks – for those who are lucky enough to be employed — and the American consumer drives two-thirds of the economy. Retail sales declined in May for the first time in 11 months and spending on gasoline has been falling. Economists have already reduced some of their growth forecasts for consumer spending.
Higher fuel prices are driving up the cost of food production and delivery, which is forcing businesses to cut other expenses, including overtime pay, insurance programs and of course, salaries. Many budgets no longer include funding for things like training programs or equipment upgrades.
Employers have been reluctant to hire and the jobless rate remains stubbornly high, climbing to 9.1 percent in May. Housing — a central component of most U.S. families’ financial worth — remains mired in a deep slump.
Restaurants and coffee shops are taking a hit, as more consumers are packing lunches and making coffee at home, to stretch their paychecks. Factory activity has been sluggish as well.
Many economists upgraded their growth forecasts for the American economy at the end of last year, often to well above 3%, but the numbers so far this year have come in below 2 percent. And that 2% economy is reshuffling the deck on everything from the debt debate to job growth to the likely outcome of the 2012 elections.
The McKinsey Global Institute predicts that it will take five years to bring employment back to its prerecession peak. In the 2% economy, you can add an additional year or two to that estimate. There are still economists who say growth will pick up toward the end of the year. Unfortunately, there are no easy answers for business owners and companies, except to try to stay the course.