Here’s a breakdown of the significant effects the coronavirus outbreak has had on the U.S. economy and what that might mean for your business.
The COVID-19 pandemic has shifted the entire world in unprecedented ways. The global economy has experienced extreme volatility as implemented safety measures affect companies both large and small across nearly every industry.
Though we can’t predict which permanent changes we may see as a result, small business owners should keep the following economic factors in mind as they navigate through uncertainty.
Interest Rates
The big picture:
As COVID-19 spread around the globe, the Federal Reserve made two cuts to the federal funds rate. Rates were dropped to a target range of 0-0.25 percent, a range the country has not seen since the 2008 recession. The Fed has indicated rates will remain low until it’s clear that the economy has weathered this disruption.
Rate changes have vast implications for the economy at large. Borrowing money becomes cheaper as interest rates on mortgages and many loans drop, stimulating economic activity. However, interest rates on savings vehicles may also fall.
You need to pay attention:
If your business is financed with variable rate loans, you will likely see lower rates on those loans. If you are paying a fixed interest rate on loans for your business, the new rates may make refinancing your loan a reasonable option.
Additionally, if you foresee your business struggling with cash flow, you might benefit from the lowered rates by supporting your business with additional financing to help you stay afloat.
For consumer-driven businesses, the impact of the COVID-19 is likely even larger. However, when the curve flattens and the nation settles into its new normal, the low interest rates should ideally stimulate lending and consumer spending, potentially enabling consumers to have more cash on hand.
Less Worrisome:
If your small business is not dependent on financing or if the health safety measures don’t bring as much disruption to your business, the lowered rates may not affect you as directly. However, stay up-to-date as the low-rate environment may affect your financing decisions in the future.
International Volatility
The big picture:
The COVID-19 pandemic has affected most countries and territories around the world. Some countries have been affected much more than others. Regardless of the local impact, many foreign economies will likely see significant disruption similar to the United States. Still, it’s not predictable how individual countries will respond and recover. Some may rebound quickly, while others may take longer.
Additionally, many countries have altered trade policies, particularly on essential supplies like personal protective equipment (PPE) and other medical supplies. In the U.S., some of the Section 301 tariffs on medical imports from China have been removed.
You need to pay attention:
If your business involves foreign trade, you might experience disruption as supply chains around the world are interrupted and reorganized to prioritize medical and essential goods. Even if your business doesn’t directly involve foreign trade, you may be affected if you rely on suppliers that source materials internationally.
Less Worrisome:
If you don’t engage in foreign business and don’t depend on suppliers who do, this trend may not have a large impact on your operations. While the world’s economies are still unsettled, the shifting of global trade and related policies may be less relevant to your business than disruption here at home.
Commodities
The big picture:
The rapid shifts in consumer behavior resulting from efforts to reduce transmission have contributed to huge volatility among commodity prices. The sharp decline in transportation has caused an oversupply of gasoline and jet fuels, rapidly lowering the prices of those commodities. Predictions of reduced demand for construction has also caused the price of lumber to sink on global markets. Conversely, the sudden surge in consumer demand for certain products has caused the prices of other commodities, including many food supplies, to rise.
You need to pay attention:
If you rely on raw materials for production or spend a significant amount of money on gas for transportation, deliveries, and shipments, the current volatility in commodity prices could affect your bottom line. Determine which materials your business needs access to, and pay attention to shifts in supply and demand. Consider securing additional supply lines for some goods that are scarce. You may also consider securing a surplus of necessary materials if their price has fallen.
Less Worrisome:
If your business isn’t reliant on raw materials for production, you shouldn’t be heavily affected by the swings in commodity prices. Similarly, if you don’t frequently ship your goods overseas or across borders, you likely won’t see a significant impact.
Interest rates, the global economy, and prices and availability of commodities are likely to continue fluctuating as the COVID-19 pandemic continues. Beyond that, consumer behavior may permanently shift as people use new and different services while weathering this health crisis. Focus on protecting your business, protecting yourself, and keep these trends in mind as you consider your business’s path forward.
For more insights on the coronavirus and guidance for businesses, explore our COVID-19 Business Banking Resources and Support page.
Commodity related products carry a high level of risk and are not suitable for all investors, Commodity related products may be extremely volatile, illiquid, and can be significantly affected by underlying commodity prices, world events, import controls, worldwide competition, government regulations, and economic conditions. Investment involves risk, including loss of principal.
