One of the things people are often fearful of when becoming business owners is current market conditions. With the news blasting fear in everyone’s ears, it’s no wonder many Americans are scared to take a risk on themselves and entrepreneurship.
Understanding this reality, we wanted to get a first hand look from a US Economist to see what the real story in the market is. We want to know the truth about where we’re headed as a culture and an economy.
A Lesson in US Economics at IFA’s Annual Conference
We all feel the pain of inflation, increased costs at grocery stores, gas stations, and the hesitation in spending that follows. While the question always remains, “is there more to come or are we turning the ship?”
In order to find the answer, FBA made sure to attend the “State of the Economy” session with Joe Brusuelas, at the 2024 International Franchise Association’s (IFA) annual conference.
About Joe Brusuelas, Chief Economist, RSM US LLP
Joe is an award-winning economist with more than 20 years analyzing U.S. monetary and fiscal policies, labor markets, and the overall health of the economy. He is a significant voice and his contributions are highly respected, evidenced by his frequent briefings to Congress and regular features across top financial media. His insights not only guide policymakers and business leaders but also help demystify complex economic trends for the broader public.
Needless to say, he knows what he’s talking about.
The Time to Invest is NOW
As a business owner and investor, we are always looking to buy low and sell high. It’s important to find those points of opportunity that allow for real increases—and it appears that right now is one of those moments.
Soon you will see a progressive upward trend in American markets as the incredible people of our country outproduce any negative effects of the market with the support of their tools.
What an incredible time in history to invest in a business or franchise.
In this article, we’re going to cover American manufacturing, inflation rates, the growth of AI and how we are more productive with its use. After you’re through reading, you’ll understand what all this means for you.
Here’s a debrief on the state of the US economy.
The Renaissance of American Manufacturing
According to Joe, the seeds of American renewal are starting to sprout. Spearheaded by a commitment to domestically produce goods, this renaissance is rapidly transforming communities across the nation.
Have you noticed new infrastructure projects in your neighborhood, like the laying of fiber-optic cables? (I have). These developments are much more than upgrades to our local landscapes. They represent economic revival.
Manufacturing, especially high-tech and advanced sectors, is seeing substantial investments, shown by the recent construction of a $43 billion chip facility. Such initiatives are not isolated economic activities, but are creating ecosystems in rural and underdeveloped areas, morphing them into bustling centers of technology and innovation.
What does this mean for future business owners?
Local Markets and Consumer Bases
As manufacturing hubs emerge and expand, particularly in rural or previously underdeveloped areas, they create vibrant local economies where we can see job opportunities multiply and living standards improve. Additionally, the local population’s disposable income increases, leading to higher demand for goods and services.
For a franchise system, this means a ripe environment to establish new outlets or expand existing ones. Service-oriented franchises, like fast-food restaurants, automotive services, and health related services, can thrive by catering to the needs of a growing workforce and their families.
Infrastructure Development
The infrastructure required to support large manufacturing facilities, such as roads, utilities, and housing, also supports franchising.
For instance, the laying of fiber-optic cables not only improves connectivity but also enhances the operational capabilities of businesses, allowing for more efficient supply chain management, better customer service, and the integration of advanced technologies like online ordering systems or mobile apps. This enhanced infrastructure attracts more businesses and increases competition, which can help avoid Market cannibalization.
Enhanced Supply Chain
As American manufacturing grows, the supply chain dynamics within the U.S. improve, making it easier and often more cost-effective for franchises to source products domestically. This not only reduces lead times and increases the reliability of supply but also appeals to a growing segment of consumers interested in supporting locally made products.
Additionally, franchises that pivot towards local sourcing can benefit from marketing their support for American jobs, which can enhance brand loyalty and community support.
Economic Stability and Consumer Confidence
The job creation and economic stability that come with increased manufacturing can lead to greater consumer confidence. As community spending stabilizes, the fear of that spending diminishes, and people are more likely to invest in services and goods. This creates a healthier business environment where business owners can expect more consistent revenue streams.
Navigating Through Inflation
In recent years, inflation has been a buzzword that triggers concern among potential business owners and investors. However, the current economic landscape shows promising signs of inflation management and recovery. Joe Brusuelas highlighted that inflation rates have peaked and are now stabilizing, with a quarter-over-quarter rate sitting at a manageable 2%. This significant deceleration is crucial for economic planning and forecasting, offering a more stable environment for investments.
The anticipated reduction in interest rates to about 2.5% by 2026 further alleviates concerns, making capital more accessible and affordable.
Lower Borrowing Costs
For franchise owners and entrepreneurs, these predictions mean lower borrowing costs, which translates into expanded growth opportunities and potentially higher ROIs.
Lower interest rates mean reduced costs of borrowing, which is often a substantial hurdle for new and expanding businesses. For potential franchisees, now is a good time to secure funding for initial investments or for existing franchise owners to finance renovations, technology upgrades, or expansions.
Lower borrowing costs can lead to faster growth and scalability, which are key drivers of success in the franchising industry.
Boosting Consumer Spending
A stable inflation rate and lower interest rates generally boost consumer confidence and spending power.
For business owners, particularly those in the retail and service sectors, this can translate into increased sales volumes as consumers are more willing to spend on eating out, personal services, entertainment, and some other “non-essential” services. A healthy consumer spending environment supports franchises in achieving better financial performance and growth.
The Growth of AI and Enhancing Productivity
The integration of Artificial Intelligence (AI) in various sectors of the economy is really a revolution in productivity. AI’s capabilities, including machine learning, predictive analytics, and automation, are being leveraged to enhance efficiency and output across industries. This surge in productivity, which saw an increase of 4% and a more modest 2% in 2023, is pivotal in outpacing inflation and fostering sustained economic growth.
Consider the application of AI tools in franchising—from inventory management to customer service, these technologies streamline operations and enhance efficiency. Such improvements reduce operational costs and elevate the customer experience, directly contributing to improved business outcomes.
This effectiveness of AI in enhancing productivity is key to its impact. By enabling businesses to produce more quickly and efficiently, AI helps in mitigating the adverse effects of inflation.
Streamlining Operations
AI technologies can automate and streamline various operational aspects of a franchise, such as inventory management, scheduling, and compliance. For instance, AI-driven systems can predict inventory needs based on historical data and current market trends, ensuring optimal stock levels and reducing wastage or shortages. This not only saves time but also minimizes human error, leading to smoother operations and reduced operational costs.
Enhancing Customer Service
AI-powered tools like chatbots and virtual assistants can transform customer service experiences. These tools are available 24/7 and can handle multiple customer queries simultaneously, providing quick responses to common questions and freeing up staff to handle more complex issues. This leads to faster response times, increased customer satisfaction, and ultimately, loyalty, which is crucial for the success of any franchise or business.
Improving Marketing and Sales Efforts
AI can analyze vast amounts of data to provide insights that were previously unattainable. By understanding customer behaviors, preferences, and trends, AI can help business owners tailor their marketing strategies more effectively. For example, AI tools can optimize email marketing campaigns, personalize online advertising, and even predict sales trends, allowing franchises to allocate their resources more efficiently and increase their return on investment.
Reducing Costs and Increasing Profitability
By automating routine tasks, AI allows franchise owners to operate more leanly and efficiently. Automation reduces labor costs and helps avoid expensive human errors. Furthermore, AI’s predictive analytics can help in predictive maintenance of equipment, reducing downtime and repair costs. All these factors contribute to lower overall operational costs and higher profitability.
Creating and Transforming Jobs
Lastly (for now), while AI automates some tasks, it also creates new roles and transforms existing jobs. For franchise owners, this means an opportunity to upskill their workforce, making them more competent and versatile. Employees trained to work alongside AI are more productive and can focus on more strategic and creative tasks, adding more value to the business.
Seizing Opportunities in a Dynamic Economy
Understanding the dynamics of American manufacturing, the trajectory of inflation, and the revolutionary impact of AI provides a clear picture of where the economy is headed.
For those considering business ownership or investing in a franchise, these elements signal a landscape ripe with opportunity. Now is the time to act. The economy is preparing for a period of sustained growth, significantly enhancing the potential for business success.
So, we’ll conclude how Joe Brusuelas did.
Venturing into business ownership in this economic landscape is a strategic move towards securing a prosperous future.
This productivity surge we’ve seen acts as the mythical tide that lifts all boats, enabling higher economic growth rates. We are witnessing something truly magnificent: an economy that is growing at a faster pace, predicted to expand at 2-2.5%.
By increasing our output per hour, we enhance the overall economy, setting the stage for an American renewal and economic renaissance. The tools for success are within your grasp, and the market conditions are aligning to support bold, innovative ventures that dare to capitalize on these transformative times.
Are you ready to leverage this knowledge for business ownership? Let’s talk about it.