Business Plans For A Rosier Future In 2024

Economic growth continued strong in the fourth quarter of 2023, contradicting many forecasts of recession, including mine. We could still have a few quarters of slower growth, and the possibility of recession remains, but the most likely path is growth. Business leaders who have been gloomy need to re-think their attitudes about labor, capital investments and financing.

Growth of gross domestic product, GDP, adjusted for inflation came in at 3.3% annualized in Q4. Our long-term compound growth for the last two decades has been 1.9%, so we did well last quarter, and that was coming off the very-strong 4.9% growth of Q3.

Labor Markets Will Tighten

Employee hiring and retention should top the list at many business adjustments to the news. The labor market has been softening in recent months, as measured by quits and job openings. Unemployment has ticked up just a little, but every month’s statistics show continued gains in net job growth.

This good news for employers comes in the middle of a decade of low growth of the working age population. Companies should return to their prior tight-labor mindset. Perhaps “labor hoarding” is going too far; that was the practice of hiring in anticipation of future needs. But for real openings, hiring sooner rather than later makes sense. Working on employee retention will pay dividends as the labor market tightens back up.

Capital Investments To Increase Productivity

Many companies trimmed their capital spending plans in 2023. Expected slow growth—or negative growth—meant less need for new capacity. Interest rates were higher, making some projects not pencil out. And banks tightened their credit standards, affecting even those businesses willing to pay the higher interest rates.

Now it’s time to put those projects back on the to-do list. Future demand looks better than it used to. More importantly, projects that will improve labor productivity align with the likely tightening in the labor market.

Long lead times for some equipment will trouble those who drag their feet increasing capacity and productivity.

Talk To The Bank About Credit

We don’t yet have data that banks are easing credit standards, but that’s certain to come so long as the economic climate continues to improve. Many business owners spend too little time talking to their bankers. The topic of conversation should be less about golf and more about credit worthiness. The best questions to ask regard the bank’s view of the company’s financials. Is the bank willing to lend? Would it be willing to increase its credit line if the company found good opportunities? Would it cut the credit availability after one bad quarter?

While talking about credit, don’t neglect to ask about interest rates. They are negotiable, so ask. When the economy improves, banks tend to lower their markups. This is called the “spread” over their cost of funds. It may be too early now to get a better interest rates, but keep the idea in mind if the outlook for the economy continues to firm up.

The U.S. economy is not in for a boom. The big change is one of expectations: they had been weak, but now they are moderate. That shift should spur some tactical changes on the part of business.