It’s been a bumpy ride over the past three months. Fears over the coronavirus pandemic, global trade challenges, domestic tensions, and more have kept newsrooms busy. Unfortunately, while newsrooms might have been, many businesses didn’t have that experience. Layoffs, furloughs, and cash flow woes have been on the top of everyone’s minds.
Is There Reason to Be Optimistic?
Over the past few months, you’ve probably had to make a few tough decisions just to stay afloat. The “R” word loomed large, and you likely planned for a slow uptick in your forecasting and scenario planning sessions. But as we’ve discussed, scenario planning should account for a variety of outcomes.
Understandably, as someone who lives and breathes numbers, you may have seen a lot of red recently, and the morale in the accounting department might not have been too high. But as they say, these are unprecedented times.
Following our last blogs on the importance of planning your recovery and the role of scenario planning in charting your course back, we’d today like to explore the scenario you might not have been planning for—a big time rebound.
Shot: U.S. Economy Entered a Recession in February
Here’s the reality. We entered a recession in February.
As reported by Reuters, The Business Cycle Dating Committee of the National Bureau of Economic Research said in a statement its members “concluded that the unprecedented magnitude of the decline in employment and production, and its broad reach across the entire economy, warrants the designation of this episode as a recession, even if it turns out to be briefer than earlier contractions.”
The article goes on to note some of the driving factors behind this designation:
- U.S. gross domestic product fell at a 5.0% annualized rate in the first three months of the year.
- The outcome for the April to June period is expected to show an even worse annualized decline of perhaps 20% or more.
- The unemployment rate rose from a record low of 3.5% in February, hitting 14.7% in April and 13.3% last month.
Chaser: The May Numbers Are In
So, we entered a recession in February. Unemployment claims hit record numbers, GDP dropped, and we’re still not officially out of the woods in terms of government mandated lockdowns. Sounds bad, right? Sure. Until you look at the last month.
NFIB Study Reports Small Business Optimism Index Rebounded to 94.4
Despite what economists predicted, small businesses expect Main Street to rebound. As reported in CFO, The National Federation of Independent Business said its Small Business Optimism Index increased 3.5 points last month to 94.4. That followed a record 8.1-point drop in March and a decline of 5.5 points in April.
The 3.5 point gain was the largest since 2017 and topped economists’ expectations, edging closer to the 104.5 number before the lockdowns. Small businesses are already looking to rehire, with 8% looking to create new jobs.
“As states begin to reopen, small businesses continue to navigate the economic landscape rocked by COVID-19 and new government policies,” NFIB Chief Economist Bill Dunkelberg said in a news release. “It’s still uncertain when consumers will feel comfortable returning to small businesses and begin spending again, but owners are taking the necessary precautions to reopen safely.”
Jobs Report Beats Expectations
But that’s only part of the picture. Anyone can be optimistic—but how many are putting the pedal to the metal? More than expected, apparently. Nonfarm payrolls expanded by 2.51 million in May compared to an expected contraction of 8 million and the previous month’s contraction of 20.69 million. The labor force participation rate improved by 0.6 percentage points, and the numbers of temporary layoffs declined sharply.
Even Construction Employment Numbers Are Less Awful Than Expected
Though this may not affect you, it’s a good thing to know. When it comes to evaluating a recession, there are many places to look. But often, one of the hardest-hit and slowest-to-recover sectors is that of construction. Well? The employment numbers aren’t great—a 12.7 percent industry unemployment rate.
However, for an industry that recovers at a snail’s pace (the 12.7 unemployment rate matches May 2012—years after the Great Recession ended), any good news is welcome: the sector added 464,000 jobs last month.
“The huge pickup in construction employment in May is good news and probably reflects the industry’s widespread receipt of Paycheck Protection Program loans and the loosening of restrictions on business activity in some states,” said Ken Simonson, the association’s chief economist. “Nevertheless, the industry remains far short of full employment, and more layoffs may be imminent.
Your Time to Shine: Leading the Recovery
For the last couple months, we’ve preached the importance of balancing caution with optimism, leaning more heavily on the former. However, if these numbers mean anything, there is reason for hope. Will the decisions be hard over the next few weeks? Yes. Will you be taking on new roles and responsibilities? Yes.
But if there is room for optimism, you need to include a plan for it. If you’re looking to learn more about your roles and responsibilities in the path to recovery, we invite you to read our latest blogs on the steps you need to take to right the ship and the importance of forecasting. We also invite you to join our upcoming Controllers Roundtable on the changes you might need to make in the coming months.
Plan Your Next Steps: Controllers Council Presents Controller’s Roundtable–Changing Roles and Priorities
Controllers Council will host a webcast with our esteemed Board of Advisors to share insight into how each has managed during this pandemic, how roles and responsibilities have changed, and what are new priorities for Controllers now and in the near future.
Learn more about how others in your shoes are changing roles and priorities as the US heads toward recovery. Watch now.