If you are listening carefully to the business news, you will have heard the experts talking about the
impacts of a “soft landing” and how that will affect business performance from now until the end of the year.
One of my favorite business gurus is Jamie Dimon of JP Morgan, and he has been sharing his insights about the threat of disruptive soft landing and the potential of stagflation. Many business leaders are taking notice so I wanted to share some foundational business acumen skills that you can use to make better decisions.
What is a “Soft landing?”
A soft economic landing is when an economy transitions easily and smoothly from a period of strong expansion and growth to a period of slower growth and stability without experiencing a severe downturn such as a recession or even a depression. In a positive soft landing scenario, economic metrics such as GDP growth, employment rates, and inflation remain stable and don’t disrupt or shock the economy. Central banks, the Federal Reserve, and policymakers often aim for a soft landing by implementing appropriate monetary and fiscal policies to manage economic cycles and mitigate the risk of overheating or recession.
What is Stagflation?
First of all, stagflation severely impacting an economy is rare. Stagflation is an economic phenomenon characterized by a combination of stagnant economic growth, high unemployment, and high inflation. It's a rare and challenging situation for policymakers because the typical tools used to combat inflation, such as raising interest rates, can accelerate unemployment and further slow down economic growth. Conversely, actions to boost economic growth, such as reducing interest rates or increasing government spending, may worsen inflationary pressures.
The last significant bout of stagflation hit the US economy in the late 1970s driven by a confluence of rare factors such as oil price shocks, supply disruptions, and loose monetary policy.
While the job market remains hot and unemployment low in the new economy of 2024, think about how close we could be to the following triggers:
- War in the Middle East impacting oil production.
- More supply chain disruptions due to geopolitical issues.
- Radical monetary decisions to fight off a recession,
The reality of these three bullets is that they could all happen within a weeks’ time and there isn’t much anyone can do about it.
What Do I As a Business Leader Need to Know and Do?
When an economy enters a soft landing, it's generally characterized by a gradual slowdown in economic growth without a significant downturn or recession. Here's what a business leader can do during such a period:
- Review Your Business Strategy: Assess the current business strategies and make necessary adjustments to adapt to the changing economic conditions. This might involve reallocating resources, adjusting pricing strategies, or diversifying products and services to meet evolving consumer demands.
- Monitor Economic Indicators: Keep a close eye on key economic indicators such as GDP growth, inflation rates, unemployment figures, and consumer spending. This will provide insights into the overall health of the economy and help in making informed decisions.
- Focus on Operational Efficiencies: During a soft landing, focusing on operational efficiency is essential to maintain profitability. Look for ways to streamline processes, reduce costs, and improve productivity without compromising on quality.
- Manage Cash Flow: Keep a close watch on cash flow management to ensure that the business has sufficient liquidity to weather any potential challenges that may arise during the soft-landing period. Maintain a healthy balance between reinvesting profits and retaining cash reserves.
- Stay Customer-Centric: Focus on delivering value to customers and maintaining strong relationships with them. Understand their changing needs and preferences and tailor your offerings accordingly to retain their loyalty and attract new business.
In summary, when an economy is about to have a soft landing, there is a lot you can do for your team and company. Pay attention to the indicators and think about ways of integrating these actions into your daily activities.
