2022: Inflation, Recession, and The Great Resignation: What does it mean for you?

Times are tough, but some of what’s happening in the markets right now was clearly foreshadowed as a looming COVID aftermath.

Inflation

Triggered by COVID

Delayed demand on one side: People spent less during lockdown and delayed purchases. Demand is bouncing back now with things opening back up again.

Supply chain squeeze on the other side: Production shuttered during lockdowns and are taking time to come back up to speed.

*Exacerbated by rising fuel cost because of the Russia-Ukraine war which led to many countries boycotting Russian oil and Oil & Gas companies raising prices to recoup their losses during the lockdown.

The rise of most general goods forced many employees to demand higher salaries to meet the higher cost of living (it also happens that employees have the upper-hand in salary negotiations right now as companies struggle to retain talent with the great resignation that we triggered by people re-evaluating their careers during COVID).

Leading to a positive feedback loop:

Governments are increasing interest rates in an attempt to cool down inflation by reducing consumer spending. How does this work? Higher interest rates lead to higher costs of borrowing, as most transactions are in credit instead of cash (credit cards, mortgages, lines of credit), this reduces spending before the purchase even happens and in turn reflects as a decrease in demand that will help drive prices down. Some governments also print less money in an attempt to increase the value of their currency.

Higher mortgage rates also decreases home purchases (and lots of related transactions that come with the purchase of a new home – furniture, electronics, etc.). More people are forced to remain as tenants as they can no longer afford mortgages, developers slow down on their projects, further causing a rental squeeze that drives up the cost of renting, and in turn reducing spending on nice-to-have purchases.

What does this mean for you?

• As a business owner:
  • Find clients/customers with high purchasing power and are less impacted by inflation. e.g. affluent individuals, larger corporations.
  • Focus on sales, sell as much as you can while prices are high and demand hasn’t dropped.
• As an employee: Now’s as good a time as ever to negotiate a raise.
• As a consumer:
  • Spend less, but now’s also a good time to sell your assets while you can get good money for them in return.
  • It’s time to save up for the looming recession.

Sadly, tax brackets aren’t shifting despite pay raises. We’re still required to fork up more money to the government despite earning more to cope with the increased cost of living. Understandably, governments are reluctant to make this adjustment as it’s a formal acknowledgement of permanent inflation. After all, it’s much harder to move back to lower brackets once they’ve been bumped up.

Recession

A decrease in consumer demand/spending spurred on by activities that are designed to combat inflation may inadvertently trigger a recession.

With less demand, business activity and economic growth slows down. Companies halt expansion plants, hire less, reduce wages, and even layoff employees.

What does this mean for you?

• As a business owner:
  • Target clients in recession-proof industries (e.g. healthcare, accounting, auto repair/maintenance, rental agents/property management).
  • If growth in the business is slowing, repurpose/reorient/or retrain your team to focus more on sales/marketing. Activities that lead to an increase in revenue are never a bad thing.
• As an employee:
  • The job market isn’t in your favour right now, you’ll want to put off any plans you might have of job hopping without a solid offer on the table. Prove your worth and flexibility within an organization.
  • If you were laid off and opportunities are scarce, take the time to reskill and work on developing your network.
• As a consumer:
  • In theory, increasing your spending would collectively help ease an economy out of recession.
  • If you can afford to make purchases, now’s a good time to take advantage of the drop in prices.
  • Invest wisely, financial markets typically plummet in a recession, if you’re able to predict which companies may whether, or even thrive, the recession, now’s a good time to buy their stocks while it’s discounted.

The Great Resignation

Also triggered by COVID:

• As people were laid off, put on hold, shifted to working-from-home, many have had more time to reflect on their current careers, personal values, and mission.
• Mothers (and some fathers) had to leave the workforce to care for their children when schools and daycares shut down.
• Some businesses did not successfully survive the lockdowns.
• The shift from in-person to remote work, and now back to in-person/hybrid led to more people leaving as they struggled to cope with adjusting to these new work/life conditions.

Have resulted in an abundance of talent in the marketplace. In order to better retain talent and attract new talent (+ to address inflation), companies have been forced to sweeten their offerings.

What does this mean for you?

• As a business owner:
  • Higher salaries and better benefits are a factor but aren’t the only means to recruit in a competitive market. Instead, focus more on attracting better aligned talent that cares about your company mission, values, and culture. They’re usually more willing to compromise on salary if there’s better alignment on their personal mission, values, and career goals.
• As an employee:
  • Too bad for your employer, but as mentioned above, now’s a good time to negotiate a raise/better benefits.
  • If you’re dissatisfied with your career/company, this is also a good time to reevaluate your goals and explore other opportunities.