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Mr. Biz Radio: How to THRIVE in the 2023 Economy

Unedited transcription of the show is included below:

 (00:04):

Welcome to Mr. Biz radio, Biz. Talk for Biz owners. If you're ready to stop faking the funk and take your business onward and upward, this show is for you. And now here's Mr. Biz, Ken Wentworth.

(00:19):

All right, welcome to the famous slash infamous show that I do, I've been doing for the last few years to prepare you to be successful in the coming year. So this show's gonna come out on December 30th, 2022, and we're gonna talk about what do you think? How about some 2023? How about some 2023, baby? I'm even dressed up like New Year's Eve right here. Okay. so I wanted to talk a lot about some of the things that I see coming in the economy. So I wanna talk about the economic outlook. A lot of different things there. The interest rates the labor market supply chain issues, the stock market. I'm gonna go through some of those things, give you a little bit of historical context on those. And then I'm gonna give you some opportunities. But first of all, I'm gonna give you what I, I think is gonna happen in 2023 as well with those to predict, give you some predictions on what to expect.

(01:17):

And then I'm gonna give you some opportunities based on how I think things are gonna play out in 2023 and on how you can be out in front of those and take advantage of opportunities and be set up for a successful, mega successful 2023. Cuz even though we're, you know, in the recession headed to a recession, how long is it gonna last? What are, what's gonna happen with all these different things? That's what I wanna talk about, is what to expect with all those things. That sound cool? All right, so, so you're stuck with me. No guests. Just just some Mr. Biz predictions for 2023 to help you have a really good year. So the first thing I wanna talk about is a, as a matter of fact, it just happened a few days ago. The you guys probably heard about this.

(02:02):

You see it in the news. At least you see the headlines about the F O M C meeting. That's the group. It's, it's the Federal Open Market Committee is, is the what that acronym stands for. And they meet, I think they meet eight times a year, typically, unless they have emergency meetings and they decide what to do with interest rates. So let me give you a little bit of context and a little bit of background on that, because I think a lot of people, again, if you're not into the economy or economics and you just hear the headlines, they're like, okay, I don't even know exactly what that means. Okay, interest rates are up. Again, got that part. I don't know what all this means. Well, so the F O M C, which is part of the Federal Reserve, I won't go into a whole lot of weeds here but I want to give you some context so you know exactly what it is.

(02:42):

So they literally have two goals. That is why the F O M C was, was started, was started back in 1984. And the, the two things that they are required to do are to keep prices stable, i e inflation and to maximize employment, I e deal with unemployment. So, generally speaking, on a very simplistic level to give you a little context, and by the way, when you're at a cocktail party or something, you're gonna sound really smart if you throw some of these things out to people, cuz most people don't know this, these things, right? So generally what happens is you, why do they r raise interest rates? Why do they drop interest rates? What the heck is the driver of that? Well, of course there's a whole bunch of variable factors in that, but generally speaking, based on those two goals of keeping prices stable and maximizing employment, they raise rates when inflation is high, right?

(03:31):

So that's, that's what you're we're seeing this year. As a matter of fact, this is crazy. So in the history of the F O M C, so since 1994, so, you know, whatever, 30 years, almost 30 years, there's only been five times in those 28 years or so that they've had rate changes of at least 75 basis points, which is a fancy way of saying 0.75% only five times in 28 years until this year. So <laugh> this year in 2022, they had 4 75 basis point changes in only five months. So between June and November, they raised it four times and 28 years prior, they had only done that five times where they had had change of at least 75 basis points. So just to show you how aggressive they're being this year and how they've been to kind of put it into historical context for you of like, holy crap, this is like big, big stuff now.

(04:27):

So on the flip side of that, so again, they raise rates when inflation is going high. That's presumably with what happens then as the increase interest rates, inflation is gonna drop. The cost of goods keeping prices more stable at race. It's a lever basically. Now on their second goal of maximizing unemployment, what they do is when unemployment they drop rates when unemployment is high. So you can understand this is kind of where they're at. So, you know, we've obviously had, inflation has been kicking us in the butt globally is, is, but especially well, United States doesn't have as bad as some of the European countries, and even in Asia as well. But that's where they've been really had to be aggressive because obviously inflation has been very high. Still over 7%. At the time of this re this recording, which is historically, you know, we hit a high that we hadn't hit in almost 40 years earlier this year.

(05:24):

Now it's come down a bit again. Now we're, we're hanging in the low sevens inflation wise, but I'm sure all of you guys are feeling this as consumers, as business owners, et cetera. Cause you're seeing it everywhere. So the current fed rate is four and a half percent. So with the most recent increase they had, it's currently at four and a half percent. They won't have another F O M C meeting unless they have an emergency one, which I don't anticipate. They'll have to, they won't have another one until I think late January is the next one, January of 2023. And they'll see how things played out during the holiday season. What was consumer spending, you know, that people really, you know, spend less during the holidays. We don't have that data. Some preliminary data that's been in so far though has actually been a little surprising and a little bit alarming from a consumers perspective.

(06:10):

Good from a business owner perspective, that spending is up actually preliminarily during the holiday season. Spending is up, consumer spending is up, which you would think people were in a recession where, you know, this isn't gonna end anytime soon. You would think that people would be kind of battening down the hatches, maybe spending a little less during the holiday season, et cetera, especially with interest rates going up. So what I would tell you is as a business owner and as a consumer, the one caution, you've already seen it already this year, but you're gonna see more of it is if you have any debt that is a, has a variable rate on it. So it's not a fixed rate debt. Credit cards are a great example if you're carrying any credit card debt, but there's a lot of other things. So as a business owner, you might have a line of credit, most lines of credit commercial lines of credit are variable.

(06:55):

So those are gonna continue to go up. So what, what, what I would expect, my prediction for 2023 is there's gonna be a few more rate increases in 2023, however, I don't think they'll be as aggressive. This, this lifted at 50 basis points during the meeting the few days ago. I think we'll start to get into maybe one more 50 basis points again, depending on how things play out for the holidays. And then probably a couple 25 basis point increases I would expect. However, I would think after that we should start to see inflation continue to come down. I think that'll be good obviously for everybody as consumers, as well as business owners and, you know, your cost of goods, et cetera. The cost of materials, the cost of everything is gonna decrease with that, with inflation coming down.

(07:41):

But I wouldn't expect, so it's gonna take a while, right? So it's, you know, that, that, that lump going through the snake, it takes a while for it to get all the way through all these aggressive changes they've made. It's gonna take a while for that to kind of filter through the economy. And again, the holiday season where consumer spending is the highest, obviously the of the entire year kind of complicates that a little bit. So again, that's what I wanna see. It's kind of difficult to predict without knowing that data yet. But I wouldn't expect to see, I would expect to see, again, a few more cuts and then towards the end of the year, probably they'll have meetings and not make any, any changes at all. No increases, no decreases. As the economy settles, as inflation starts to settle, we're probably gonna see unemployment increase a bit.

(08:22):

And we're gonna talk about that during the next segment. But I would expect that you won't start, you'll start to see some cuts, probably not until mid tw 2024. So we're gonna be at these interest rates, I think for the next probably 18 months or so before you start to see reductions. So that's kind of where things are from that perspective on the economic outlook as far as interest rates what the F O M C is, how they make their their, their changes. Where why are they doing it? Where are they doing it? And what I think is gonna happen next year, we're gonna come back after the break and talk about labor and what that's gonna look like for 2023.

(09:02):

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(09:41):

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(10:10):

Got a question for Mr. Biz. You want answered on air, email it to This email address is being protected from spambots. You need JavaScript enabled to view it.. Now once again, here's Mr. Biz.

(10:22):

Alright, alright, all right.

(10:22):

So it's also Mr. Biz's tip of the week. I forgot to mention that to close the last segment, of course. And I can tell you guys that have been listening or watching the show for length of time, the last tip of the year. And that's what this one will, when this will come out on December 30th is always, and for the foreseeable future, will always be how I close every show of Mr. Biz Radio. And that is cash flow is king. It is so important. That's why I put it as the last one, as a reminder to people. And especially right now as we're in this recession, we're in a high inflation rate environment. We're having all these different challenges or anything you gotta remember, it's about cash flow. Cash flow without cash don't about business. And again, I've mentioned this many times before, 82%, you only see all these statistics about businesses failing startups and how long they last and everything.

(11:12):

82% percent of businesses that fail, fail due to cashflow challenges. I mean, holy crap. So get that right and you don't have to worry about 1800%, right? <Laugh>. So that's the way I look at it. So that's a Mr. Biz tip of the week for this week. Now, let's talk about labor. Again, if you're a business owner and you've got a team, a large team, small team, doesn't matter. You're probably wondering about what's gonna happen because everyone has been facing these challenges. I know I've got clients, geography, industry, nothing has been immune to the labor challenges that have been, at least in the United States. And I'm sure I'm not as familiar with things across the pond, but I know there have been challenges there and actually some places that are much worse off than they are in the United States. But I got a little bit of an intriguing aspect this I wanna cover because you, you're probably not gonna hear this so much in the media.

(12:04):

And that is, so the current unemployment rate as of November of 2022 the December numbers haven't come out yet. They'll come out in about, what, about six or seven days I think. So I don't have those yet, but the most recent unemployment numbers in the US is they are 3.7% is the unemployment rate. Now, to put that in perspective, a little context for you. Again, we've been running in the three and a half to 3.7% ish unemployment window you know, variable range there from three Q of 2019 to now, with one exception, of course. As you can imagine, during covid we had, I think it only lasted basically two months, but it spiked up to 14.7% nuts. The, those numbers haven't been seen since late seventies, early eighties. But we know why it was. And, and again, it spiked up, I think one month it was 14.7%.

(12:56):

I I believe it was April of 2020 and May, it came down to like nine, and then it got down the next month. You know, it made its way back down that kind of three and a half percent range. But the thing I wanna mention to you that you probably won't hear in the media, and that is that rate, one thing that's misleading is it doesn't capture what's called labor participation. Now what the heck is that? Right? And again, I promise I'm not gonna get too far in the weeds, but this is important for you to recognize because you're wondering, geez, why, you know, unemployment's so low, you know, what's going on here? You know, how can it be easier for me to hire folks, et cetera. So the labor participation rate, what that measures is able-bodied people between the ages of 15 and 64.

(13:43):

So again, this is all US based. So if you're watching I don't, I'm not sure what they are. Again, something outside of the United States, but the statistics, so that la so that tells you of that, of the able-bodied people between ages of 15 and 64, what percent of that population is actually participating? I e is either employed or seeking employment. This is, this is gonna blow you away. And this is again, why you might not see this in the media for a variety of reasons. I'm not gonna get into all that. But that number, that labor participation rate peaked in 1997, and it peaked at about 77%. So almost eight out of 10 people between the ages of 15 and 64, their ale body were either working or were looking for work. So you might be asking, and I'm gonna tell you what is that rate?

(14:31):

Now I hope you're sitting for this one, and if you're a business owner, you might already be anticipating what I'm about to tell you. That labor participation rate right now, the most recent number that's been published is 61 point a 5%. So 77%, almost eight outta 10. Now we're down to almost six out of 10. That's a 20% reduction depending how you look at it. 20 ish percent reduction. Now, what that means is, again, only about six out of 10 people, 15 to 64 are seeking employment or employed are seeking unemployment. It's puzzling to me and I'll get into that in a second. So what I like to look at is what I call the a adjusted unemployment rate. And that is what is the unemployment rate? And then, you know, what would it be if we had a higher labor participation rate?

(15:22):

So by my calculations, the adjusted unemployment rate, which I, what I would call, frankly, for me as a business owner, as an entrepreneur, what's most important to you is the adjusted the MR biz adjusted unemployment rate. Right now it's about 4.4%, which is relatively speaking over the last 20 years is pretty high. Now the question remains, and I'm sure a lot of you are thinking the same thing, what are all these people doing? How are they not working? Again, there's a lot of different theories behind that. There's a lot of different moving parts to it. You know, a lot of the gov government subsidies that people were, were able to get during covid. To my knowledge, most of those have dried up now. So I don't know if I, I'm honestly not sure, and I actually spoke with an economist friend of mine about a week ago about this.

(16:11):

And, you know, they're puzzled in the, you know, economist world. They're puzzled as well. Like, where are these people going? How are, how are they paying their rent? How are they paying their mortgages? How are they making their car payments and buying food and all this other stuff. So keep that in mind that labor participation rate really gives you a full story of what the heck is going on in labor market. So I would expect, again, we're gonna, as I mentioned a little bit last segment about when I talked about the F O M C, and you know, again, when unemployment is high they drop rates, I don't expect we're gonna start to see that. I think unemployment will start to creep up. As we get into 2023, we, we will not stay in the 3.7%. I think we're gonna get over non-ad adjusted.

(16:54):

We, we'll get over the 4%, maybe even up in the four point a half, close to 5%. And at some point, probably, I would guess once we hit in that four and a half to 5% range is when they'll start the drop interest rates. Again, start making reductions to that as opposed to the increases they've had to try to stem off inflation. So again, I don't anticipate that's gonna happen probably until maybe the middle of 2024. So what I'm unfortunately here to tell you is there are, the labor challenges are probably not gonna get better in the foreseeable future for the you business owners out there. A lot of different ways you can go about that. We'll, we'll have to do another show about that as well of, of being able to attract good people. It's not always about the money.

(17:36):

Different things you can do there. Geez, got about a minute left in a segment here. So I, I still wanna talk to you about number one, I want to hit on supply chain. I want to hit on the stock market briefly. Actually, let me do the stock market right now, now because I think that's probably the one that you know, you're interested in, but not as much as a business owner. But so the stock market right now, I would anticipate what we're gonna see the first half of 23 is gonna kind of be around the lows of what we've seen in 2022. So depending on what index you, you track to the s a p 500, et cetera, I think that the first half things are gonna, again, depending on consumer spending of this holiday season, but I think they're gonna kind of stick around the lows.

(18:14):

However, I think the, you'll see an acceleration during the second half of 2023. I think what'll end up happening is by the time we get to end of 2023, we're gonna see year over year stock market gains, overall stock market gains in the 12 to 15%. So meaning where we ended 2022 versus where we're gonna end 2023 over the entire year, I think we're gonna end up seeing 12 to 15% year over year gains in the stock market. So that's a good thing. You won't see those, I don't think, start the, that start to climb up until the second half of the year though. So don't shoot me in April when you're like, I thought this thing was going up. Guys, I don't anticipate that. All right, so the last thing I wanna cover, we're gonna cover it in the next segment. I wanna talk to you about supply chain. I'm sure that's impacting a lot of you guys. And then again, talk to you about some opportunities and things you can do to combat some of these challenging things in the economic environment for 2023.

(19:10):

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(19:40):

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(20:11):

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(20:21):

All right, so got a decent amount to cover. We got only one segment left here. We got nine minutes. I wanna dive in pretty quickly here. So supply chain maybe some of you guys have been sitting out there watching, listening and saying, when's he gonna get the supply chain? It's freaking crushing me. It's been crushing me. So again, lemme put this in the con context for you a little bit. And some of you have seen this and I'm talking about the overall market of, in the supply chain. So your specific area in the supply chain could be obviously better or worse than this, but this is for the overall. Again, I can't specify it to an industry. I don't, the show is not just for one industry, right? So lead times are still, you guys are gonna know this already, but lead times generally in the supply chain are still about 85% higher than they were a pre pandemic.

(21:07):

There's a couple different things that are keeping it up that high. Now there are some good news, there's some good news to it. I'm gonna get that in a second. But two primary challenges that are keeping that number high. One of them is hopefully gonna change soon or will be changing over the next several months. And one, maybe not based on what I just talked about, the two primary things that I see that are drivers in keeping that number as high as it is, is number one, the covid restrictions in China. Obviously there's a lot of things that are coming out of China as a primary manufacturer in the, in globally, and they just recently have been get, have begun to lift some of their covid, the very, very strict covid restrictions they've had over there. Cause if you are aware, I'm sure you've seen it, some of the news, so obviously Covid hit super strict, they started to loosen things, they had an outbreak again, they tightened down really tight.

(21:59):

Again, they're just starting to, to, to open the doors a little bit more on that. And restrict, or sorry drop some of those restrictions. I hope that that continues. So that will hopefully change, right? So it's gonna take some time and hopefully they'll do it slowly so they don't have another outbreak where they, you know, tighten things up again. Cause that's obviously gonna cause a problem and drive the numbers back up. The other part, unfortunately, I think is a big driver in keeping that number so high is are labor shortages. And, you know, just talk about the labor issues last segment and how I don't think that those, unfortunately they're not gonna change significantly, make become significantly better anytime soon. I do think that they will start to get a little better as we get into, you know, again, mid 2024, late 2024, but that doesn't do as much good for the next 18 months.

(22:50):

Another thing that's, you know, another, a couple things on the supply chain before we talk about some opportunities here. Another thing that's really driving this, and you guys have seen this, if you get anything that c becomes to you via a trailer, flatbeds, et cetera, the cost of diesel. So, you know, the, the government's been you know, saying, oh my gosh, the cost of gas has come down so much, you know, and it has over the last six months or so, the cost of diesel, however, currently is still 60% higher than it was last year in 20 2021. So 60% higher. Of course, those diesel charges are going, getting passed on via freight charges to you if you're receiving things. Now, here's some silver lining. You guys like this part. So recent statistics show. So flatbeds just in general and I should mentioned it but you might not know this little interesting fact, you might be able to win a trivia contest on this.

(23:44):

Maybe, maybe you'll get this question on jeopardy. Rail actually carries about 30% of the overall supplies in the country. So obviously we've had some r rail challenges in the country and the government had to step in and avert a strike. Not sure how that's gonna play out. Again, there's a lot of political things moving back and forth on that, so stick a pin in that one. As they say, not sure what the heck is gonna happen with rail. Hopefully they continue to, to avert strike and don't have anything like that because if so again, it's gonna impact 30% of the market's why I mentioned that. Now, the silver lining I mentioned flatbeds. So the most recent statistics show that flatbeds, this is gonna sound bad first per trailer there, right now. There, there's about the supply and demand issues with that, there are about 12 loads per trailer that's available.

(24:35):

So, you know, obviously the best would be one to one, well, which 12 to one, which sounds pretty bad. However, it peaked in May of 2021. So about a year and a half ago it was at 97 loads per trailer. So 12 doesn't sound great, but it sounds way freaking better than 97, right? So there are things that are, that are, you know, that that's actually getting better. So that's something to keep in mind. That said, supply chain issues. I think, you know, as they've, they have improved slightly some of the freight charges and some of the n non diesel related freight charges and some of the, the delays and everything, they've, they've come down a little bit. I don't, I think we'll start, you know, see some improvement there, but I don't think we'll see anything significant there again for probably at all in 2023.

(25:24):

Again, slight changes to the better, but I don't see anything on the horizon that's gonna really shift that and make it, oh my gosh, it's so crazy. It's so much better. I think it's gonna take us a while. If we ever get back to pre pandemic levels, it's gonna be challenging and it's gonna take a while to get there. So let's talk about some opportunity. So one of the things, the very first thing you need to do is you need to look at any marketing you're doing. Look at every piece of marketing you're doing and look at the roi, the return on investment you're getting from those. What I would tell you is, first of all, cut out the ones that aren't getting a good return and maybe put your, your marketing eggs. You know, maybe if you wanna cut your marketing a little bit, but shift the money out of maybe let's say you have five different things that you're, you're spending marketing on, and two of them are kicking butt and you're getting a great roi.

(26:16):

The other three are, okay, cut the expenses on those three or significantly reduce them, but push that money into the two that are working. So what I would tell you is on the marketing side, I would expect that some marketing costs, depending on what it is, it's gonna come down based on supply and demand, because a lot of your competitors, as you would expect, are gonna start to cut, well have already started, but they're gonna continue to cut expenses based on all this, you know, the economic challenges that we're seeing. And so as that demand for marketing goes down, the supply is gonna go up, which you should be able to get at a cheaper rate for a lot of things. Not everything, but a lot of different things will be cheaper. So a lot of your competitors are gonna think on a scarcity mindset and shrinking as opposed to abundance.

(26:57):

You know, I'm not a fan of that. You gotta make sure, now don't get all crazy. I'm not saying to get crazy with this, but you can't, you can't stop marketing. People are gonna think you went out of business because especially with a lot of businesses having challenges and, you know, going out of business. So one thing that I'll tell you that if you wanna be on the aggressive side, don't be afraid. It's gonna sound crazy to borrow money if you don't ha if you're not in a bad debt position now to borrow money to put it into marketing, if you know that you can get a two x return on whatever the rate is that you're, you're being, you're borrowing. So for example, if you have to borrow it at 8%, you need to be, you need to make sure that that marketing you're gonna spend on is at least gonna earn you 16% at that point.

(27:39):

It makes sense. Go ahead and do that. I know that's aggressive, but it'll pay off in the end and it'll allow you to seize market share as your competitors are thinking scarcity and shrinking. So three steps I want you to do critically very, very important is first of all, create a budget. If you don't have a budget, gosh dang it, you gotta get a budget. I've talked about some million times, especially, especially important during, you know, economic challenges during things. When you're looking at cutting expenses or ing, you've gotta have a budget to know what the heck you're doing, where you're going, where you've been, how does it compare to two years ago, three years ago, et cetera. So you can make better informed decisions. Mind your margins. I talk about this all the time. Make sure that you're not just willy-nilly cutting expenses because you might be cutting off your pipeline.

(28:29):

I talk about this all the time, and when you're gonna reduce expenses, you gotta make sure that you're not cutting down your sales pipeline. So it's very critical if you're gonna reduce expenses that you're not reducing them in areas that are gonna hurt your pipeline, which could be marketing, which could be, you know, cutting your customer service department, right? You, you have retention issues at that point. And you know, along with minding your margin is you gotta freaking crush that silent business killer. I talk about any products or services you have that are breakeven are actually losing you money and you probably have it, if you haven't looked at this recently, get rid of them. Either increase the prices so you're making money on those products or get rid of them. They will in this type of environment. They will crush your business, they'll crush your cash and crush your business. We are out of time. I tried to squeeze in as much, I had a few more things I wanted to cover, but unfortunately we're out of time. So do these things. You can have a successful 2023. You can gain market share. You can actually scale your business. This is the best time to do it actually during economic challenges. Thanks for watching. Have a great week. As always, don't forget cash flow is king

(29:40):

To become part of Mr. Biz nation, follow him on all social media platforms or never miss a show by going to mrbizradio.com. If you prefer free video content, visit the Mr. Biz YouTube channel or check out his streaming channel, which is available on 100 plus streaming platforms at mrbiznetwork.com.