Michael Collins, of EquiNova Capital Partners LLC, addressed possible recession concerns at the Fenestration and Glazing Industry Alliance (FGIA) Hybrid Fall Conference, warning against a “wait and see” approach for businesses. While many companies are doing well, he says the U.S. has a tendency to worry itself into a recession. However, those recessions don’t last as long as they used to.
After the “strongest employment recovery we’ve ever witnessed” following the COVID-19 pandemic, Collins says the U.S. is essentially back to full employment with an unemployment rate of 3.7%. During the pandemic, unemployment reached 14.7%. To put things in perspective, unemployment was around 10% during the Great Recession and 7.8% in 1992.
“For this country, it is the strongest employment recovery we’ve ever witnessed,” he says.
But with lingering factors from the pandemic such as inflation and supply shortages, concerns of a recession may have some businesses thinking twice about executing their planned projects. That, Collins says, is a mistake.
“We can worry ourselves into a recession in this country,” he says. “We hear so much about it and then all of a sudden, it’s ‘Should I take on that new venture? Maybe I’ll tap the breaks, and wait and see.’ Those three words end up making a recession, in my opinion, at least in part a self-fulfilling prophecy.”
If a recession does occur, those conditions will not last for years as is the impression and fear of many. Collins says the reality is that recessions in the United States last 17 months on average.
“That’s coming up on a year and a half,” he says. “Importantly, as we’ve gotten better at measuring our economy, responding to changes in the economy and with all the tools we have at our disposal now, the six recessions we’ve had since 1980 have only lasted 10 months apiece.”
The reason the last recession didn’t turn into a depression, according to Collins, is that the government learned its lesson during the Great Depression. And so it flooded liquidity into the economy with the pandemic recession.
“If we’ve learned one lesson in all these years, that’s the lesson we’ve learned,” he says. In my opinion, that has resulted in shaving seven months off of the average recession, trimming it down to just 10 months.”
So, what can businesses do when there is fear of recession, but at the same time, business seems to be going well?
In the past, the government accelerated the depreciation on machinery and equipment. Collins says that provides an immediate tax benefit for businesses and that some companies even purchased equipment they didn’t need at the moment.
“Then when the economy did recover, those folks had excess capacity to meet demand and were the biggest long-term winners from the trough period of the economy to the recovery,” Collins says. “Another thing to do is take a look at hiring key sales professionals from other organizations.”
The recruited sales representative could bring a “big chunk of business with them,” all without requiring an actual acquisition of another company. Collins also says that conditions have to be just right for companies to invest time and money into new ideas and products. We could be seeing such conditions right now, he says.
“When we’ve had things as hot and as strong as we have the last 18 months, and now maybe there’s a general soft patch that lets us breathe and catch our breath, maybe that makes this one of those times,” Collins says. “One of those times that companies in our industry segment can explore new ideas and new products more than they did in the past.”