by Garry Hojan
I’m by no means an expert on this subject, but I did have the opportunity to participate in the 90-minute Charles Schwab 2025 Outlook, where global financial experts discussed this topic in depth. I will share some of that information and my thoughts on how it applies to our businesses..
Potential tariff impacts were the number one requested item for the Charles Schwab Team.
Highlights:
1. Outside markets will grow faster than the U.S. market. France’s government failed; Germany is a minority government. Despite this, the International Monetary Fund Europe (IMF Europe) forecasts 1.5% growth, which is much better than the previous performance forecasts of 0.1 and 0.2%.
2. Tariff threats may be negotiation tools. 25% tariff threats for Mexico and Canada are the same threats made in 2019, which ended up being used to negotiate deals. We’ll see what happens. Charles Schwab does not expect actual implementations, as they would be more deleterious for both markets. Tariff threats on goods from China could be sweeping; retaliatory tariffs are being threatened.
3. Deportation would most impact the service sector. Impacts in other industries will depend on particular business markets. Restricting labor force growth means restricting potential GDP (economic) growth. Labor growth has been all foreign-born individuals (there is no tracking of undocumented vs. documented; it is too difficult to track).
4. Given the upside risks to inflation, the Fed will likely take a more cautious approach to cutting rates by holding policy steady at some of the 2025 meetings. Unless the labor market weakens significantly, the path for the Fed rate cuts is likely to be slower and shallower than previously expected. An ending or “terminal” rate between 3.50% and 4.0% seems reasonable for this cycle.
Okay, so you may ask, what does all this mean to me? Well, here are some of the things it could mean:
Domestic vs. International: If your business is 100% domestic, meaning you import nothing and export nothing, then much of the international outlook may have a secondary impact. For instance, raw materials could increase in cost, depending on whether they’re imported, and the levels of domestic inventories.
Conversely, the EU outlook appears positive if you export to that market but may depend somewhat on the fallout from France and Germany’s woes. A side warning, if you are traveling to those countries this quarter, or in the next couple, be aware of potential strikes by air and rail workers.
Minor inflationary slowing could mean better access to capital if needed.
A fifty-thousand-foot view right now is uncertain. So, what to do?
Acknowledge volatility: First, we acknowledge that we may be in for a ride of volatility within the uncertainty. Communicate, communicate, communicate, keep stakeholders informed about developments and decisions, and do your best to maintain consistency with communication channels.
Retain customers: Second, focus on customer retention. This should be etched in stone somewhere. Acquiring a new customer can cost five times more than retaining an existing customer. Increasing customer retention by 5% can increase profits from 25% to as high as 95%.
Conduct scenario planning: Third, do some scenario planning. What would happen if your 6061-T6 aluminum profiles, or all AN/MS/NAS hardware, just quadrupled in price? What actions would you take? What if those electronic components suddenly are no longer available? If international tensions increase, what are those impacts specific to your business? The supply chain will require more attention, which means more resources. Do you need to maybe plan for that by applying more resources? Are there increased labor issues that may need more resources to address? Can you, and how, apply more resources?
Review financials: Fourth, “Know Thy Status,” meaning make sure you know your financial situation and pay particularly close attention to cash flow. Use your data to your advantage.
Review business model: Fifth, this is an outlier but should not be dismissed. In changing times, do you need to ask yourself if the business model needs a pivot to accommodate changes?
Looking for another perspective on your business in the New Year? Let’s chat. You can email me at ghojan@jhaero.com or call my cell at 208-627-2565.
We are all diving into 2025 together. My greatest prayer is your success, whatever that means to you.
