How will the threat of recession impact Huntsville businesses? Experts chime in
Shoppers these days are feeling the crunch every time they pull out their wallets–prices of consumer goods and services are rising ever higher from the grocery store to the housing market. At the same time, businesses both large and small are dealing with the fallout from consumers who are becoming more selective in their spending behavior.
This phenomenon isn’t unique to the US–it’s happening around the globe. The World Bank’s latest global economic forecast, released on May 31, forecasts that global economic growth will likely slow down before the end of the year.
“For many countries, recession will be hard to avoid,” stated World Bank president David Malpass.
Many experts, such as Harvard economist Jason Furman, argue that there is no guarantee that a recession will occur. Even if it does, most economists agree that the likelihood of a repeat of an all-out collapse such as that of 2008 is slim.
In a Fortune magazine interview, Stephen Miran, cofounder of Amberwave Partners and a former senior advisor at the U.S. Department of the Treasury, stated that recessions are an unavoidable fact of economic life.
“We were fortunate in the previous cycles to have gone a pretty long time without a recession. But actually, you know, recessions happening has been the norm throughout most of economic history.”
Instead, Miran believes it’s more likely that the U.S. economy will fall into what he refers to as a “garden variety recession” in which the economy “overheats,” causing inflation to rise.
Miran pointed out a notable difference between then and now: “The big thing in 2008, remember, what happened was really borderline fraud in the economy because you had all these people that were borrowing money [to buy homes] that really couldn’t afford it.”
Changes to the banking system, such as the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 corrected this, and although some of the Dodd-Frank Act was rolled back under former President Donald Trump, protections continue to remain more robust than they were in 2008.
In the US, the Federal Reserve has raised interest rates again in its biggest rate hike since 1994 in an attempt to tame inflation. While this is an effective way to cool the red-hot market, small business owners are not optimistic about the future.
According to a recent study by the National Federation of Independent Business (NFIB), the percentage of small business owners expecting better business conditions over the next six months decreased four points to a net negative 54%, the lowest level recorded in the 48-year-old survey’s history. Expectations for better business conditions have deteriorated every month since January.
Twenty-eight percent of owners reported inflation was their single most important problem in operating their business, down four points from April. The net percent of owners raising average selling prices increased two points to a net 72% (seasonally adjusted), back to the highest reading in the survey’s history last reached in March and 32 points higher than May 2021.
“Inflation continues to outpace compensation which has reduced real incomes across the nation,” said NFIB Chief Economist Bill Dunkelberg. “Small business owners remain very pessimistic about the second half of the year as supply chain disruptions, inflation, and the labor shortage are not easing.”
On a more local basis, a February report from Area Development Magazine noted that Alabama is faring better than its neighboring states. CNN named Alabama “Best Southeastern State in Keeping People Employed During an Economic Crisis,” while Forbes magazine named Huntsville the “Best Place to Live During Recession.”
Madison Mayor Paul Finley remains optimistic about the future of the area: “While I will never say we are recession proof, I do feel like our community is positioned as well as any community in the nation to weather an economic slowdown.”
“Our community is diversified with critical national needs including Army Materiel Command, Missile Defense, the propulsion needed for Space Exploration (and missiles), the FBI, ATF, and almost every contractor who supports these critical missions. Each area is a need, not a want and thus, should continue regardless of what happens with the economy,” Finley explained.
Mayor Battle agrees with this assessment, saying “The City of Huntsville recognizes the potential for a recession, but I believe the jobs and businesses that have come here over the last several years will keep our economy strong.”
According to Huntsville Urban and Economic Development Director Shane Davis, the past provides valuable insights into the area’s preparedness. “While I do not believe any city is recession proof, Huntsville is in a good position to weather a potential national economic downturn. Our leadership learned from the 2007-2008 recession that the key to our local economy’s long term health was to diversify our economy,” he said.
“Since 2012, we have focused on creating growth in a variety of job sectors. This strategy has created almost 40,000 new jobs across the job sectors of R&D, advanced manufacturing, cyber security and tech, commercial space, logistics, and health sciences. By our latest numbers, approximately 7000 of these new jobs are still to be filled over the next 3 to 5 years.”
Davis noted that no community is immune. In the previous recession, the region only grew by about 2%, in contrast with 4-5% economic growth in prior years. “Given the economic environment that Huntsville has created, I could see our growth slow to the high single digit numbers (8-9% compared to our current double digit growth that has occurred in recent years (15-18%).”
Davis does not foresee that this would directly impact small businesses focused on providing goods and services due to recent and ongoing population growth from job creation helping to sustain this business sector. However, he stated that he could see a potential slowdown by consumers with larger “debt type” purchases. “In addition,” he added, “with the area’s current housing inventory being low, the demand for new housing starts will remain stable.”
The post-pandemic tourism boom is also contributing strongly to Huntsville’s vigorous economy, with the city’s attractions enjoying drastic growth in the number of visitors and the amount of revenue generated (see the July 2022 Huntsville Business Journal cover story for detailed information on this). While the Huntsville metro area isn’t necessarily fully immune to the effects of a potential recession, one could say that it’s fully boosted and ready to face the challenge.
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