Is the US headed for a recession? Experts seem to think so.
Two years removed from the Covid-19 pandemic recession. the US is bracing for another downturn within the next two years. Aside from the continuous disruptions caused by the coronavirus, its numerous variants, and its effects on business operations and the global supply chain and other developments worldwide are further pushing back the Covid-19 recovery of the global economy from the challenging period.
As a result, businesses are now making moves to prevent another catastrophic event like their first encounter with Covid-related lockdowns and establishment closures. The search for less costly alternatives continues, reverting to previous methods discovered during the pandemic or upgrading business processes for cost-efficiency purposes.
Global Factors Affecting Incessant Inflation, Increasing Risk of US Recession
In 2020, the US economy was significantly declining due to the Covid-19 pandemic-driven recession. It was a deep economic plunge in the gross domestic product (GDP) during the first quarter of 2020 at a steep 31.4%, as reported by CNBC News. The number of American workers who lost their jobs during the same timeframe was 20.6 million, surpassing even that of the Great Depression. This is partly due to the closure of restaurants, retail stores, and small businesses because of financial issues and lockdown-related protocols.
Although it is among the US’ worst recessions in history, the 2020 US recession was also among the shortest. Once government aid and business adjustments started, the unemployment rate winded down. At the end of 2020, unemployment rates dropped to 8.11% despite reaching a high of 14.7% during the Covid-19 pandemic’s early stages.
The graph above compares the unemployment rates during the Great Recession in 2007-2009 and the Covid-19 Recession in 2020. The recovery from the Great Recession was a slow grind, taking almost four years to drop below the world median and an additional two years to reach the coveted 5% threshold. The Covid-19 Recession, albeit a sharp 10% or more increase, was able to recover fast and dropped to about 5.79% the following year. Based on the statistics, the United States and its workforce are slowly recovering from Covid-19 but have yet to reach the unemployment rate during the pre-pandemic years. It is understandable, given that the virus remains a global threat, albeit a milder one. The instant recovery shows a possibility of returning to normal, at least in stabilizing the US economy in terms of employment.
Despite the somewhat good news on the Covid-19 pandemic recovery, the US economy remains under another threat of a recession. It is mainly because ever since the pandemic, inflation has continued to soar high.
In May 2022, the Consumer Price Index (CPI) reached an 8.68% increase over the last 12 months, the highest within nearly half a century. While it is easy to relate inflation to the Covid-19 pandemic, it is far from the only factor contributing to the fast-paced consumer price hikes. Within the last 12 months, a hostile conflict between Ukraine and Russia broke out, affecting the global supply chain, especially in the oil and gas industry. The war continues to weaken economic recovery from the pandemic in the US and the rest of the world. The US, already on unfriendly terms with Russia, is already suffering from long-term economic damage due to rising geopolitical tensions. Commodity price surges, especially in oil and gas, will likely take years of refocused local production, which means inflation will likely remain high.
Of course, the ideal situation is to have local production speed up, increasing the chances of recovery for the US economy. However, sourcing for local production in the US means shipping materials from trading partners overseas, another headache contributing to the continuous rise of inflation.
United States President Joe Biden made it clear that supply chain issues are the primary factors of inflation, saying that the biggest foreign shippers controlling over 80% of the world’s shipping vessel capacity raised their prices by over 1000%. However, the Federal Maritime Commission concluded that the competitive market and unprecedented consumer demands contributed to the price hikes.
No Recession in 2022, But Businesses Must Still Prepare
The surging inflation is way beyond the Federal Reserve’s long-term target of 2%, giving almost all an idea of the next US recession. However, the Federal Reserve is focusing on keeping the inflation rate at around 4%. The current inflation is at 8.68%, and forcing it down aggressively will bring about a recession. The slow and steady action can prevent thousands, if not millions, of Americans from losing their jobs. Most US past recessions usually start with the unemployment rate growing to unprecedented numbers. With rising inflation, job loss becomes even more crippling to US households, especially in the low- to middle-income classes.
Unfortunately, the world’s current events show no signs of slowing down. The Russia-Ukraine conflict remains tense and continues to disrupt the global supply chain. Lockdowns in China and the COVID-19 pandemic’s continuous disruptions continue to hurt the world’s progress. The US economy might be trying to prevent a US recession in 2022, but the chances of entering it within the next two years are high. The tactic aims to help businesses deal with one thing: create an action plan to prevent the recession from closing their doors.
With the next two years being at risk of a US recession, businesses must make moves now to prevent operations from becoming unsustainably expensive. Failure to prepare could lead to financial struggles, challenges with purchasing supplies and materials, and employee layoffs.
The usual cost-saving strategies can work, but companies must make more significant adjustments to reduce expenses to negate or manage what the recession could do to operations.
Preparations in an economic downturn will be necessary, starting with improved customer service, amplified marketing strategies, and innovative operational practices. Finding more affordable suppliers and onboarding new technologies could also help companies prevent inflation from becoming intolerable. Those combined efforts will require months of planning and adjustments, with early 2023 being the target for those specific changes.
However, companies still have to deal with one of the most significant expenses in their books to manage the economic downturn: labor costs. Businesses are aware of how much it costs to onboard employees. Even if a company stops hiring today, the expenses will still be high enough for the next recession in the US. There will come a time when businesses have to lay off employees to keep businesses alive. Fortunately, the Covid-19 pandemic provided a blueprint to help enterprises thrive despite losing employees.
US Businesses to Use a Key Pandemic Solution for Possible US Recession
Offshoring solutions are among the saviors of US businesses during the pandemic, and they remain relevant in preparation for a possible US recession. Employee layoffs, as necessary as they are to reduce costs in a US recession, will still hurt businesses in plenty of ways. Disruptions will be significant to operations since you have limited staff to attend to workflow processes. This situation is where offshoring solutions can help.
Offshoring pertains to relocating business processes to another geographical location, mainly in a country where labor costs are significantly cheaper. The pandemic showed an increased demand for offshoring services, but not during the shortest recession period in US history. US businesses were hit blindly by the pandemic that they did not have the time to prepare. As a result, their operations suffered before they got better. This time, the recession’s waiting period allows companies to devise a plan to take full advantage of what offshoring services can offer.
For offshoring solutions to work wonders for a company, one must consider all the geographical locations where they can get potential partners. India and China are some of the most common offshoring destinations for most US businesses. Still, the Philippines provides one of the best packages that allow for the smoothest transition of moving operations to a new location.
With the impending US recession likely to hit as early as January 2023, there is only a short amount of time before US businesses can stabilize offshored operations. The Philippines, one of the pioneering countries for offshoring solutions, boasts some of the most flexible workforces in the world. English is a second language in the country, and Philippine professionals are only second to Singapore’s when it comes to Asia’s most fluent and financially literate English-speaking populations. Philippine professionals have long been exposed to Western culture, making it easier for US business owners to understand them because of the absence of a strong accent. Communication is a vital part of making offshoring plans successful, making it one of the top reasons why the Philippines is a better option than their offshoring powerhouse counterparts in Mainland Asia.
Aside from boasting a low-cost economy and flexible cultural adjustments, the Philippines also has strong government support for its business process outsourcing (BPO) sector. Foreign clients benefit from further reduced costs when building infrastructures and operations in designated economic zones, making offshoring solutions worth the investment.
An Established Offshoring Partner for US Businesses in Likely US Recession
US businesses can use the time to plan their offshoring steps before the US recession hits, with finding an established offshoring partner as the top priority. iSupport Worldwide is among the leading offshoring firms in the Philippines, with the US-owned firm attending to the needs of US businesses during the pandemic and helping them thrive amid challenging times. iSupport Worldwide’s efforts to help companies survive and expand operations led to its inclusion in the 2021 Inc. 5000’s list of fastest-growing businesses.
It is better to prepare for the worst in a likely US recession. Offshoring solutions will be more effective when planned and started early, but finding the right partner is essential. The Philippines and iSupport Worldwide will help US businesses make anticipated adjustments to prevent the US recession from causing significant disruptions. Fortunately, getting things started will only be as simple as one call.
About iSupport Worldwide
iSupport Worldwide is a US-owned offshoring firm based in the Philippines that aims to provide US businesses with world-class staffing solutions and support services. The company’s primary goal is to help companies of any size and industry grow faster despite the tough challenges, especially during an economic US recession.
The company can attend to your company’s every need, from setting up a highly competitive offshore IT division to reliable software development teams.