Is a Recession Coming? 5 Signs Your Contracting Business Should Watch for in 2020

Recessions happen, and it’s hard to tell when one is going to arrive. Recessions aren’t quite the same as an economic downturn, which occurs at least once every few years in the U.S. Construction can be one of the hardest-hit industries during a recession, although that’s heavily dependent on the region and the severity of the economic problems. Experts tend to watch for certain signs as indicators that a recession is likely, and you should, too. Here are five to keep an eye on, so you have a sense for what may be ahead.

  1. Funds Rates Drop
    If you borrow money from a lender, you pay interest. When banks borrow from each other, they also pay interest. The rate they pay is set by the Federal Reserve, and is called the “funds rate.” Higher rates indicate that lending between banks is relatively secure. When the Fed drops these rates, it often comes as a way to persuade banks to keep making these loans to each other. It indicates that financial experts are becoming wary of the health of the finance industry.
  1. Treasury Yields Decline
    If you’ve ever bought a bond, you know that this is usually a predictable way to increase your investment. As a general rule, the longer the term of the bond, the better the rate. At certain times, the rate for three-month treasury bonds is higher than the rate for 10-year bonds. Financial experts say that when this happens, it indicates that the long-term investment isn’t as safe as the short-term one. It is often a sign that a recession will come within a year or two.
  1. Consumer Confidence Slows Down
    Although much of a recession relates to hard numbers like funds rates or treasury yields, a lot of it sits with what people think about it. Part of the devastation of the Stock Market Crash of 1929 was that so many people took their money and ran. Or, they tried to take their money and were unsuccessful. Consumer confidence may seem like a nonsense indicator, but it tells you what people think and how they may use their money. Confident consumers are more likely to sell a home or buy a new one. They are more likely to invest their money. When people lose that confidence, they keep their money close to hand. They shorten the demand for new housing or other projects important to the construction industry.
  1. Employment Changes
    If you’ve paid attention to the news at all, then you probably know that unemployment is around an all-time low for most of the population. This might give you confidence, but it’s important to pay attention to the kinds of jobs that are coming in. Signs of a flagging economy don’t usually begin with massive layoffs. Instead, companies start cutting back hours. They may hire temporary workers instead of regular employees, so that they are not as obligated to provide costly features of employment like benefits. If you notice that the average number of hours is starting to go down, or the type of jobs available changing, this may be an indicator that businesses are getting ready to cut back.
  1. New Construction Tapers Off
    The health of the construction industry may not apply to everyone living in the U.S., but it certainly makes a big difference for people working in it. Experts have already noticed that the burst of construction since 2012 is starting to slow down a little in many regions of the country. Although California still has a major shortage of housing and a ton of construction projects for the next several years, this assumes that the market is still strong enough to make it happen. If property prices start to drop, or people begin to worry that they won’t be able to pay for new construction, they’ll be more likely to stick with what they have.

If you have a contracting business for decades, you’ll likely run it through more than one recession. Knowing what to look for helps you prepare for the possibilities. To find ways to make your contracting business the best it can be, visit CSLS today!

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