2020 is approaching faster than we want. With trade disputes in a full swing and upcoming election next year promises to be interesting for U.S. businesses. I am not talking here about Fortune 500 companies. The big boys will adjust and will weather any headwinds. Companies that employ from one to 500 people might have bigger challenges to face:
- Trade tariffs. This goes both ways . There will be some winners and some losers. There are tens of thousands of small U.S. based manufacturers with sales less than $20 million that surprise surprise manufacture their goods in China. Those business still end up employing anywhere from 7 to 30 people here in United States to handle sales, service, accounting and other administrative duties. I know of a company in Florida that makes athletic equipment for youth sports. 80% of their products are manufactured in China. In order to survive this company will have to make some major changes. They can move manufacturing back to U.S. but I know this will eat into their margins. This company used to manufacture locally over a decade ago and that put them almost out of business. I hear many small manufacturers are considering moving operations to Vietnam or India but that’s easier said than done. On the other hand small pillow manufacturer in South Carolina that makes all their products 100% locally would definitely benefit from higher tariffs.
- Labor shortage. One of the biggest headaches of strong economy is labor shortage. This affects all the industries from manufacturing, logistics down to banking, finance and technology sectors. If we hit growth slow down or recession in 2020 labor market should improve. I talked to the owner of construction company and he said he’s been passing on new projects because if he bids and wins he wouldn’t have enough employees to work on it. Trucking industry is feeling the pinch extremely hard since you can’t just hire anybody to drive a 18 wheeler. Drivers have to obtain commercial licenses and pass DOT mandated drug tests. So little pull back in economy would give employers a little bit more breathing room when hiring new talent.
- Interest rates. If I was writing this post six months ago I’d be talking how rising interest rates will have negative impact on further economic growth. Today expectations are that before year end Fed might have one or two more rate cuts of 0.25% – 0.75%. Lower rates are a good thing for smaller and middle market size businesses. Access to cheap capital spurs growth for those companies. They can borrow cheaper to fund capex, consider new acquisitions or buy or refinance real estate. 20 year SBA 504 fixed rates in August were at 3.526%. For a commercial loan this is a good as it can get and 504 is by far the best product out there for commercial real estate purchase or refinancing. Every bank from Bank of America, Wells Fargo down to First Citizens or Bank United offer SBA 504 loans. For variable commercial rate loans such as lines of credit you don’t have to do much since as Prime rate or 30 Day Libor goes down your rate will drop automatically. Prime rate index is used for smaller business that have revenues of under $10 million and 30 Day Libor is applicable for middle market size companies.
One thing is clear that no matter how 2020 shapes out it will be an interesting and year for all of us.