Mixed economic signals loom for 2018
FranchiseMarketUpdate
BY DARRELL JOHNSON
Optimistic , Pessimistic , Or Just Plain Anxious ?
Mixed economic signals loom for 2018
Will 2018 be a year for optimism , pessimism , or anxiety ? Every year has its opportunities and challenges . The question is how the balance shifts from year to year . I find 2017 to be fairly predictable with the balance , at least from a business perspective , clearly shifted toward a tailwind , although not as strong as some had expected ( and most of us had hoped ). However , I try to provide a longer forecast horizon because most of you are making strategic , not tactical decisions . With that in mind , let ’ s try on each hat — optimistic , pessimistic , and anxious — and see how it looks .
• Optimist . With an optimistic hat on , the franchise business community is feeling pretty good right now . Many of the issues of most concern , notably the ACA and some of the rules from the Labor Department , are in the process of being reconsidered by a Republican Congress and White House . Add the possibility of tax reform and increased infrastructure spending in a low interest-rate environment and the picture for 2018 looks rosy indeed .
• Pessimist . The pessimistic hat looks pretty good as well and , as is typically the case , has more points to consider . We are near full employment . Labor shortages , especially in more skilled positions , are becoming more problematic for employers to fill , exacerbated by immigration policy rhetoric . We are in the second-longest economic expansion in the post-WWII era , exceeded only by the technologydriven 1991 – 2001 period . All eleven expansions had several things in common , the most significant being is that they all ended . Some ended with dramatic events , like the bursting of the dotcom and real estate bubbles . Others just ran out of energy , which is more likely the path we
currently are on . For most of this long expansion growth has been anemic . It won ’ t take much of a slowdown for the expansion to reverse course . Recognizing this , lenders are starting to tighten their credit boxes and evaluate credit risks more
conservatively .
Even if government stimulus in the form of tax policy and infrastructure spending is enacted , it will take at least a year for the effects to be felt . Pessimists say it is unlikely we will see a tax reform debate until late 2017 , following the failed attempt at healthcare reform , and it may take the better part of the year to come up for another vote in Congress . If tax reform and changes in infrastructure spending do happen , they are likely to run on somewhat parallel paths . However , the timing of their consideration and likelihood of any substantive change are unlikely to have an economic impact until 2018 or later .
• Anxious . Finally , I will try on the anxiety hat . People in this camp can find many concerns with all of the above , and more . Both the stock and bond markets are sending mixed signals — mostly based on different forecasts of whether ( and if so , how quickly ) healthcare , tax reform , and infrastructure spending will come about . There are plenty of additional topics for the anxious crowd to consider . After last November ’ s election the Labor Department rulings that most concerned the franchise community appeared headed for quick change . Now it ’ s clear that any changes to these rulings will take time as they move through the regulatory and court processes . What ’ s far less clear today is just how much they may change .
No anxiety assessment is complete without considering world events . It ’ s not hard to argue that the world has become a little less safe in the past year . Country risks in many parts of the globe are rising . Even our trading partners are becoming less friendly as talk of trade barriers becomes a central focus .
My opinion When the signals are this confusing , the anxiety hat fits best . How then should you factor such a forecast into your business decisions ? If you depend on retail customers , keep an especially close eye on consumer confidence . I ’ d also pay attention to household debt , which was clearly out of control and dramatically affected the 2008 recession . It rose in 2016 after being fairly flat for the previous three years . While it still stands at 3.3 percent less than the Q3 2008 peak of $ 12.68 trillion , it is at high levels again , this time fueled by student debt and auto loans .
Taking business risks is fundamental in a capitalist society . Any aggressiveness in doing so , however , should be conditioned on your near-term outlook for your products and services . In the environment we currently are in , being a bit more thoughtful than the recent past required makes sense to me . That implies investing a bit more effort in market research , competitive and comparative analysis , and planning .
Darrell Johnson is CEO of FRANdata , an independent research company supplying information and analysis for the franchising sector since 1989 . He can be reached at 703-740- 4700 or djohnson @ fran data . com .
76 MULTI-UNIT FRANCHISEE ISSUE II , 2017