What HR needs to know about the economic climate

Remember when you were a broke 20-something who never checked your bank-account balance? Ignorance was bliss as you bought an iced coffee and prayed your biodegradable, turtle-safe straw wouldn’t be the one to break the camel’s back.

We regret to inform you that this is not the approach to take when on the precipice of a recession. If the stock market falls in a forest, it will make a sound, even if we bury our heads in the sand. Now that former US Treasury Secretary Larry Summers has predicted a recession is “almost inevitable,” it’s time to talk about the economy.

In plain English, what’s a recession? If you took a macroeconomics class in high school, you know that a graph showing healthy economic growth moves up and to the right. Expansion is good. One of the most common metrics of expansion is gross domestic product (GDP), which measures the value of goods and services produced in a country.

According to economist Julius Shiskin, recessions occur when the GDP graph trends down for two consecutive quarters. The National Bureau of Economic Research (NBER) added to this definition, stating a recession is “a significant decline in economic activity spread across the economy and that lasts more than a few months,” normally visible in real GDP, real income, employment, industrial production, and wholesale-retail sales, among other factors. Not all of these indicators need to dip for a recession to occur; as Bloomberg reports, “extreme conditions” impacting just one of these economic indicators could be enough to trigger a recession.

Briefly, where are we? TL;DR: The graph is moving in the wrong direction. In the first quarter of the year, economic strains, including ongoing Covid disruptions and the end of federal pandemic assistance, caused the US GDP to slip 1.5%—the biggest drop since Q2 of 2020, when pandemic-related shutdowns began. The Atlanta Federal Reserve’s GDP Now model predicts second-quarter growth will be 0.3%.

...Uh-oh.

It’s death by a thousand cuts. Inflation is the highest it’s been in four decades (close to 9%). Higher costs have rocked business and consumer sentiment; in May, the latter hit its lowest level in nearly 11 years.

When people get worried about the economy, they tend to stop spending money (that’s the wholesale retail sales piece of GDP). Already, many have begun to spend less.

Plus, even if consumers wanted to spend money, they might not be able to afford the goods and services they’re eying. Last week, diesel gas cost $5.81 a gallon, up 80% year-over-year, ABC News reported. Diesel prices, experts say, impact the cost of, well, almost everything.

“Trucks run on diesel, and those costs get passed on to the consumer—that’s why the price of eggs, the price of milk, beer, go up,” Denton Cinquegrana, chief oil analyst at market research firm OPIS, told ABC News. “It’s the price of diesel that kind of breaks the back of the economy eventually.”

The Federal Reserve has tried to put the kibosh on inflation. In June, it announced a massive interest-rate increase in an attempt to essentially throw cold water on the economy. But some worry the Fed acted like your coworker who “follows up” on an email just an hour after sending: They were too aggressive. Some stock investors are concerned high interest rates could slow down the economy down too much, making the GDP problems worse.

Okay, yes, this sounds very, very bad. Should I panic? The bad news is a recession looks likely (though not inevitable). Economists at Bloomberg, Deutsche Bank AG, and Nomura Holdings Inc. predict we’ll enter a recession between the end of 2022 and beginning of 2024.

Others think we’re already there.

The good news is that recessions are a natural part of the economic cycle: Economies grow and they contract. Recessions typically last anywhere from six to 12 months, so while they may not be pleasant, they don’t last forever.

What can HR do? Should a recession occur, HR leaders may have to make hard choices—they may need to cut benefits, put raises on hold, or even lay off staff. To find out what tools HR has available to weather the storm, keep reading.—SV

Do you work in HR or have information about your HR department we should know? Email [email protected] or DM @SusannaVogel1 on Twitter. For completely confidential conversations, ask Susanna for her number on Signal.