Macroeconomics of a Recession

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Hi, it’s Victor Cheng from SaasCEO.com. Today, I want to talk about the macroeconomy. I wanted to share a few numbers to put the economic changes into perspective. Today, it’s March 16th, 2020. I’m giving you the date for those of you who watch this video later on, in posterity. Today, Goldman Sachs announced their forecasts for U.S. GDP, the size of the US economy, inclusive of all spending inside of the economy. They forecast, in the second quarter of the calendar year, a 5% decline in economic activity with growth in the subsequent quarters.

Now, who knows if this is right? But, it gives you some idea of the order of magnitude that those who follow this are thinking, in terms of the size of the financial impact the coronavirus is having on the economy. And so, a 5% decline from the prior year in a singular quarter is considered significant. If you look at the 2008-2009 recession, the Great Recession, the entire economy shrank about 5% over the span of 2009. That’s considered the second-worst recession in US history in the last 100 years, to give you some idea of the magnitude. A 5% decline is pretty significant, as recessions go. Now, let’s think about this for a second. Let’s say you look at your income. Let’s say you earn, for simplicity’s sake, $100. Let’s say you hit some turbulent times, and your income drops from $100 to $95, a 5% decline. Now, obviously, you don’t like it, I wouldn’t like it. But, is it devastating? If you’re used to earning $100, and you suddenly only earn $95, is it devastating?

For most people, it’s annoying, but it’s not devastating. That’s what’s happening to the US economy right now. It is shrinking by about 5%, that order of magnitude. That’s where we are. Now, the difficult part of a recession and a change in the economic structure is the spending moves and changes within that 95% a lot more dramatically. As I mentioned in a prior video, a lot of restaurants are shutting down, going on pause — first, due to lack of sales, and second, [dine in service was] recently banned by Governor Inslee here in Washington state to help slow down the coronavirus. That’s obviously a big, big change in where spending goes. As I mentioned before, people still got to eat. So, what’s still growing? If you look at the food sector, for example, takeout food is selling. Groceries are selling quite well. Places like Costco, I believe you’ll see their sales are quite up in this next quarter, and food delivery is also up.

If you look at who’s hiring, Amazon, I read in an article, is hiring; tens of thousands of job openings that are new because of the increased demand related to the coronavirus. I know I’ve been ordering more from Amazon because it’s easy. I can get it. It’s easier than going to the store, and my store has been out of stock on certain items. Local grocery stores like Safeway are adding a thousand jobs just for delivery. They are completely sold out of the delivery time slots for their grocery delivery service. You’re seeing, in the food sector, a lot of shifts in where the spending is. It’s quite dramatic. Sit-down, in-restaurant dining, totally out. Now it’s even against the law temporarily, as well as being out of favor. More convenient, delivery-type, eat-at-home, cook-at-home [dining] is up.

So you see, what happens is there are major shifts in the spending patterns within a slightly smaller economy. The lesson here today is, in your marketplace, you have to look at what’s selling and what’s not. Often, what is not selling is pretty obvious. It’s glaring, in many cases. But the key is to figure out, what do people still want? What do they want even more of? These spending patterns shift with time, especially as the economic environment changes. The key is to figure out what’s still selling. I want to leave that thought with you today. Look at your own numbers. Look at your business. Look at your product lines if you have more than one. Look at your regions. Look at your salespeople. Who’s still doing well? Which part of the business is still doing well? You want to look and hunt for things that are still working. If nothing is working in your business, you want to hunt and look for what’s changed with your customer. What is it that they used to want that they no longer want? And what headache, what problems, do they have now that they’re trying to solve? You have to understand them to figure out what their mindset is and to offer to solve a problem they now care about.

What’s happened in a lot of other recessions is that people’s problem-focus changes. If things are going well, generally, companies want to just keep going faster. When the economy turns, suddenly what they want is to be more efficient, save money, spend less, or spend more wisely. Oftentimes, the same product can be positioned and marketed a little differently to solve the problem of today, not of yesterday. I was on a board phone call, I think it was yesterday or the day before, which talked about preparing the company for this transition in the economy. One of the things that I emphasized, another board member also really strongly agreed with [me], was that the messaging around the product must change. How we were selling the product when the economy was really strong worked really well for that environment, but the world has changed. The message around why you want to buy the product, what problem it’s designed to solve, and how it can benefit your business has now shifted, and we have to shift with it.

Those are a few tips for adapting and adjusting to the current economic climate. It looks like we’re going to be having a recession. I can’t imagine us not, given everything that’s going on at the societal level, medically, and so forth. Times are going to change and it’s up to us to change with them. Until our next video, good luck on your business, and stay tuned for my next video on how to thrive in a changing economy. Thanks and have a great day.

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