Why a Global Slowdown Won't Stop U.S. Businesses
Economies around the globe may be sagging, but business owners and financial industry experts believe the might of the U.S. economy will continue to power on.
Senior writer, Inc.@JeremyQuittner
Automaker General Motors recently made a huge surprise announcement: It notched record profits in 2015 of nearly $10 billion. Ford Motor Company set a record of its own, with $7.4 billion in profits for the year. What was especially noteworthy is that both companies made those gains largely by focusing on North American sales.
That should send a loud message for your business, especially if you've been listening to the relentless drumbeat of negative economic news from around the globe. Oil prices are nose-diving, which is setting off unease in commodities-producing countries and emerging markets. China's economic output and currency values are falling, causing stock markets around the world to gyrate. The Bank of Japan cut its interest rates into negative territory in an attempt to stave off that country's perpetual stagflation. And the list goes on.
But then there's the United States. At times it seems to be the sole sturdy element among wobbling global business prospects. Since the recession, business owners have steadily been adding jobs, returning unemployment to pre-recession levels, and consumer demand has recovered. Meanwhile the gross domestic product growth rate, though modest, has been reliably notching between 2 and 3 percent since the end of the recession.
So how long can growth continue in the face of weak global demand? A very long time, numerous economists and financial industry experts say.
"The sheer size and self-contained aspect of much of the U.S. economy gives us a great deal of momentum even in the face of slow growth elsewhere," says Paul Wachtel, a professor of economics at the New York University's Stern School. In other words, the U.S. may be big enough to keep itself upright and to fuel its own growth for the foreseeable future.
Of course the news is not all rosy. Reduced global demand does keep our U.S. growth in check, experts say, and very low wage growth domestically will also serve to keep GDP growth at around its current level.
Some economic experts even think there could be enough global headwinds to eventually plunge the U.S. back into recession. "[Global uncertainty] is going to have a long-term negative impact on U.S. growth," says Charles Kane, economist and senior lecturer at Massachusetts Institute of Technology's Sloan School of Business, who sees growth potentially falling to below 1 percent in the next 18 months. Among the chief concerns are falling commodity prices, most critically oil, which will constrain global growth, as well as some growth in the U.S., Kane says.
The U.S. consumer is going to spend.
But there are always opportunities, even in constrained markets, says Drew Nordlicht, partner and managing director of asset-management firm Hightower Advisors in San Diego. One of those is the increasing value of the dollar. While that makes American exports more expensive, there are upsides. For one thing, people want to put money into the U.S. dollar and U.S. companies.
Following the recession, there's also pent-up demand for consumer items, particularly big-ticket purchases, as the record profits Ford and GM posted last year show, Nordlicht says.
"The lesson for the small business today in the U.S. is to realize the consumer is going to spend, and spend smarter, but the money will be there for the places where there is a need," he says.
That rings true to many entrepreneurs running fast-growth businesses, who say they are certain they can beat the tepid growth forecasts. Some, like James Marks, chief executive and co-founder of Whiplash Merchandising, an Ann Arbor, Michigan-based logistics company for online retailers, say they are confident the U.S. economy is big enough to sustain their plans for growth.
"The U.S. still has the largest e-commerce market by far, and it's continuing to expand," Marks says.
Whiplash has 40 employees and is expecting to increase revenues by 80 percent to $7 million in 2016 from $3.8 million last year. It's doing that partly by tapping more overseas retailers, who see an opportunity in the strong demand from U.S. consumers. With that in mind, the company set up a base in London in August to facilitate European shipments into the U.S.
"If your local market is performing less, then of course you are going to lean more on the U.S.," Marks says.
Savvy American business owners are taking advantage of the global economic climate in other ways as well. Andrew Jonathan Perl, the chief executive and co-founder of New York City-based Andy & Evan Industries, an Inc. 5000 company that makes high-end children's clothing, says for now the rout in commodities pricing and China's slump has worked to his benefit.
The company, which manufactures in China, now has leverage with factory owners there. That's because orders have fallen off from other clients around the globe, and producers are now willing to grant pricing concessions of between 5 and 20 percent to keep his business, Perl says.
"[Chinese manufacturers] are willing to cut deals right now," Perl says, and those savings will flow right to his bottom line.
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