The Bright Side of Recession
Gene Marks says a recession would have some silver linings for business owners.
Good morning!
Here are today’s highlights:
There are risks in hanging on to poor performers.
You should just assume that your employees, especially the younger ones, are telling each other what they get paid.
Still struggling to fill openings? Some of those early retirees might be open to returning.
Robert Vlasic turned the family business into a pickle giant.
HUMAN RESOURCES
As we discussed recently on a 21 Hats Podcast episode, companies are hanging on to poor performers: “In the tightest labor market in a half-century, people in higher functions may get by just going through the motions, too. ‘You’d have to be incredibly lousy’ to get fired as a software engineer at the moment, says David Cancel, who employs roughly 700 people as chief executive of Drift, a Boston-based marketing firm that uses artificial intelligence. ‘Most companies—and us, in some cases—are keeping people who wouldn’t be on the team in a looser market. The standards would be higher.’ Though some economists warn of a coming downturn, layoffs and discharges in recent months have registered at or near all-time lows, according to the Labor Department.”
“Much as businesses love to tout their ambitious corporate cultures—and have many ways of tracking employees’ productivity—some would gladly settle for mediocrity right now.”
“Onboarding a new worker cost thousands of dollars before the pandemic, according to SHRM, and has since become more onerous as many people report to offices part-time, if at all.”
“Employers ‘are looking at how to uplift the skill and capability of the employees that are on their staff, and they’re making great efforts to do that,’ Mr. Link says.”
“Companies’ willingness to put up with subpar employees could prompt good ones to look elsewhere if they don’t feel adequately rewarded.” READ MORE
As we also discussed on that podcast episode, you should probably assume your employees—especially the younger ones—are exchanging salary information: “Salary, once a taboo topic in the workplace, is now being shared openly in offices and on social media among a younger generation of workers. Empowered by the tightest labor market in decades and incentivized by skyrocketing inflation, employees are embracing transparency, discussing their pay in the hopes of getting raises for themselves — and their colleagues.”
“Nearly 42 percent of Gen Z workers and 40 percent of millennials have shared their compensation with a coworker or other professional contact, according to a March study of 2,449 American adults conducted for Bankrate by YouGov Plc.”
“That’s significantly higher than Gen Xers (31 percent) and more than double that of Baby Boomers (19 percent).” READ MORE
Millions of older Americans are back on the job: “Whether by choice or financial necessity, millions of older Americans have made the same move in recent months. Nearly 64 percent of adults between the ages of 55 and 64 were working in April, essentially the same rate as in February 2020. That’s a more complete recovery than among most younger age groups.”
“The employment rate among those 65 and older fell more sharply and has been much slower to recover.”
“That suggests that the pandemic might have led some people who were already closer to retirement to accelerate those plans, and that the greater health risks they faced may have made them less likely to return to work while the virus continues to circulate.”
“Still, the return of early retirees to the labor force is a reminder that rising wages and abundant job opportunities can draw in workers who might otherwise remain on the sidelines.” READ MORE
THE ECONOMY
Gene Marks says a recession would have some silver linings for businesses: “A slower economy means slower demand, which provides the chance to even out supply shortages. With less demand for products, prices will also stabilize and perhaps even fall. ‘In the 1960s, low unemployment pushed up wages and consumer prices,’ write Sage Belz and David Wessel of the Brookings Institution. ‘In the 1980s, a severe recession with unemployment that peaked at 10.8 percent brought inflation down from historic highs.’ Too much inflation is bad, as is too much deflation. That’s the puzzle economic policy makers have faced for decades.”
“But if the economy slows, small businesses can expect to see a softening in their core material costs, which have skyrocketed during this past year — and in many cases have risen well above the 11 percent producer price index.”
“Inflation is also driven by wages, which brings me to the next benefit of a downturn: more labor availability. ... more employees will be looking for jobs, and that’s a potential benefit to the millions of small firms that are desperately looking to fill positions.” READ MORE
Eight companies are responsible for nearly half of the stock market’s decline: “Eight companies are to blame for nearly half the stock market’s decline this year—and the pain doesn’t end there. Apple, Microsoft, Amazon.com, Tesla. and the parent companies of Google and Facebook swelled to be so big in recent years that they accounted for 25 percent of the S&P 500 heading into 2022. The benchmark U.S. stock index is weighted by market value, which means the biggest companies have the most influence. Just recently, those companies were powering the stock market ever higher. Now that they are faltering, the broader market is too. Together with Nvidia and Netflix, they are responsible for 49.6 percent of the benchmark’s 2022 losses through Tuesday on a total-return basis, according to S&P Dow Jones Indices.” READ MORE
COVID
The latest Covid wave has spread beyond the Northeast: “Fueled by highly contagious versions of the Omicron variant, the tide is posing a test of how much new infections matter in a changing pandemic. Though built-up immunity in the population has kept more people out of hospitals, federal health officials on Wednesday urged people in hot spots to take precautions, from booster shots to pre-gathering tests and masks, to limit the virus’ spread.”
“The rise in cases hasn’t translated thus far into major surges in severe illness. ... The daily average of reported deaths has slipped under 300 a day, the lowest point since last summer.”
“But new cases still cause disruptions and carry risks including the possibility of developing long-lasting and sometimes debilitating symptoms, epidemiologists and public-health experts say.”
“The more an outbreak spreads, the more likely it will reach the most vulnerable including elderly people and others with compromised immune systems, the experts say, and the more likely the virus will continue to mutate.”
“Still, the return of early retirees to the labor force is a reminder that rising wages and abundant job opportunities can draw in workers who might otherwise remain on the sidelines.” READ MORE
STARTUPS
A Bezos-backed startup lets anyone invest as little as $100 in rental properties: “Put simply, the startup’s mission is ‘to make real estate investing easy and accessible’ to people ‘who don’t have the expertise, time or large amounts of capital needed to buy a rental property on their own.’ People can invest anywhere from $100 to $10,000 to $15,000 per house with the ability to build a portfolio of rental properties without becoming accredited investors, which requires that an individual’s net worth exceeds $1 million. The startup manages the operational work and claims that investors using its platform can earn passive income. About two-thirds of the investors who use Arrived today are non-accredited, according to Frazier.”
“TechCrunch has reported on Fractional and Fintor, which are also focused on residential real estate. Others like Fundrise and Cadre are focused on commercial real estate investing.”
“To date, Arrived has fully funded more than 102 properties in 17 cities across Alabama, Arizona, Arkansas, Colorado, Georgia, North Carolina and South Carolina, for a total of over $40 million invested.”
“Arrived makes money in two ways. For one, it charges a sourcing fee, which works out to about 3-3.5 percent for almost acting as an agent on behalf of investors.”
“It also charges 1 percent per year of the equity that’s invested as an asset management fee that gets paid out of rental income so that the dividends investors receive are after those fees.” READ MORE
LOCATION, LOCATION, LOCATION
Elon Musk says California has gone from being the land of opportunity to the land of taxes, over-regulation, and litigation: “California-bashing from naturalized American Musk, the world’s wealthiest person based on his stakes in Tesla and SpaceX, is notable partly because his former home state remains by far the best market for Tesla’s electric vehicles in North America. It’s also debatable whether the company could have survived its rocky early years without California’s Zero-Emission Vehicle program, which created an opportunity for Tesla to sell emissions credits to other automakers that resulted in billions of dollars in free revenue over the years. (Tesla’s Fremont, California, plant, essentially a gift from Toyota in 2010, was also massively helpful.)”
“‘Nobody ever accused Elon Musk of gratitude—or even a sense of proportion,’ says Mary Nichols, former chair of California’s powerful Air Resources Board, which crafted the ZEV program and championed Tesla as it evolved from a startup to high-volume manufacturer.”
“‘He certainly would not be where he is without the ZEV mandate and the cash he got from selling his credits to the other OEMs.’” READ MORE
OBITUARY
Robert Vlasic, who ran the family’s pickle business: “Mr. Vlasic, who headed the family-owned maker of Vlasic pickles, recognized that humor had a vital place in marketing. In the early 1970s, he introduced television ads playing on the notion that pregnant women craved pickles. The ads featured a cartoon stork that wielded pickles like cigars and wore a bow tie, just like Mr. Vlasic. ‘We decided that pickles are a fun food,’ he told the Detroit Free Press. ‘We decided we didn’t want to take ourselves or our business too seriously.’
“By advertising and prodding supermarkets for better shelf displays, he transformed Vlasic Foods Inc. from a regional supplier into the nation’s largest pickle producer, surpassing H.J. Heinz Co.”
“In 1978, Mr. Vlasic sold the company to Campbell Soup Co. for about $35 million of stock. He joined Campbell’s board and served as chairman from 1988 to 1993.” READ MORE
THE 21 HATS PODCAST
Have You Looked at Your Employee Handbook Lately? This week, Jay Goltz and Dana White talk about their employee handbooks. Do they take them seriously? Or is it just boilerplate? Has anything changed since the pandemic? Is the handbook the place to remind employees that they are hired at will and can be fired at any time with or without a reason? Are there issues that should not be addressed in the handbook? When was the last time they updated it? When was the last time they read it? “Me, personally?” responded Jay. “Actually picked it up and read it?” Yes, Jay, that’s the question. “Years.”
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