As Washington boasted of a growing economy, I as well as many of you were cautiously pessimistic. Did the recession ever officially end? Was America reluctant to start spending after they lost most of their savings during the recession? But it was the following that had me the most worried.
- Internet sales surpassing store-based sales. We watched companies such as Radio Shack, Blockbuster and Frederick’s of Hollywood close stores across the country. We witnessed more people “Cyber Monday” shop than “Black Friday” shop during the Holidays. We heard jokes that large retail stores would act as “showrooms” for people to test out a product after which they would run home and try to find the best internet deal. And if a big commercial retailer closes down their store, not only does it mean job loss and loss of all workers associated with maintaining the property, but a large empty retail space is ominous for any strip mall and their sales. And beyond retail stores, doctors offices are being replaced by Skype sessions from a mission control. So the question for many companies remains…. Why would we pay rent if we don’t have to?
- Jobs becoming displaced by automation. Electronic health records cutting the need for file clerks in medical offices, tableside kiosks eliminating foodservers, robots in warehouses, and the list goes on. Employees are expensive with payroll, taxes, health insurance costs rising. Why wouldn’t an employer opt for a long term substitute that couldn’t call out sick, file a Worker’s Compensation claim, or sue for wrongful termination. Thus sadly for us, many employers find robots and automation much more legally and financially attractive.
- Baby Boomers leaving their homes and millennials not becoming home buyers. As the large generation of Baby Boomers leave their single family residence due to age or opting for roommates to cut the costs, a housing glut looms. One would expect millennials to pick up the slack but many are in no position to purchase a home with a bleak career future and insurmountable college debt.
This trifecta creates the perfect storm for a huge economic downturn. Real estate gluts and unemployment are bad news all around. We’ve been saying it for years, but have we been preparing?
Focus has been surrounding the Affordable Care Act, and rightfully so. But it can’t take all the blame. True, employers being penalized for not purchasing health insurance per employee makes for a poor incentive to hire more. But even if the law does become repealed and replaced as promised by the Trump Administration, it may be too little too late as unemployment soars from the other aforementioned factors.
Macy’s has reported it will cut 10,000 jobs. MD Anderson Medical Center reports it will downsize by 1000 employees. Sears and Kmart will cut 150 stores affecting hundreds if not thousands of ancillary workers. Amazon reports success with their surge from 30,000 to 45,000 robots.
The writing’s been on the wall for years. And now the Federal Reserve has promised to raise rates. Hopefully the new administration can soften some of the hard times about to come, but American needs to prepare and financially hunker down. This storm could get ugly.