The Kiplinger Letter, a weekly publication, is the exclusive source of our original and SEO-optimized Economic Outlooks. To access a free issue of The Kiplinger Letter or to gather more information, you can click here. In terms of business spending, specifically on capital equipment, there is a noticeable slowdown. Though there was an increase in business optimism during the second quarter, resulting in fewer inventory reductions, moderate spending on equipment, and a surge in car and truck purchases due to improved availability, the economy seems to be gradually losing momentum. As a result, businesses are likely to scale back their spending. Additionally, bank lending has tightened due to banking sector troubles and an uncertain economic outlook, leading to high interest rates on loans for businesses. This year, labor costs will continue to rise at a faster pace than usual. However, annual wage growth is expected to ease from the current rate of 4.4% to around 3.5% by the end of the year as the economic slowdown reduces hiring. It won’t be until the end of 2024 that wage gains slow down to a “normal” pace of 3%. Sectors with ongoing labor shortages, like healthcare, as well as the Southern states and Texas, where there has been a significant influx of people, will experience the highest wage growth. For insightful advice on investing, taxes, retirement, personal finance, and more, subscribe to Kiplinger’s Personal Finance. Stay informed and become a smarter investor by signing up for Kiplinger’s Free E-Newsletters. Receive the best expert advice directly to your e-mail and thrive financially. Supply chains are back in operation, and the costs of ocean freight and truck transportation have decreased. However, companies that rely on overseas sourcing face a dilemma: whether to return to the lowest-cost sourcing, even if it means sourcing from China, or to bring their sourcing closer to home to reduce geopolitical risks. Many firms are reshoring their operations to the United States, while others are leveraging Mexico as a close and still affordable alternative to China. The anticipation of slowing global economic growth has resulted in a decrease in material prices. Steel and aluminum prices have dropped, and though copper has also seen a decline, it is expected to stabilize due to lower supply from Chile, a major copper exporter. Overall, commodity prices were expected to rise after China lifted COVID-19 restrictions and its economy rebounded, but the slowdown in Western economies has reduced the demand for Chinese exports. There is some positive news for electric-vehicle battery makers, as the prices of lithium and cobalt, two raw materials essential for EV batteries, have significantly decreased this year. However, this is due to the fact that battery production has exceeded demand. Demand for semiconductors in the consumer electronics sector has also plummeted, resulting in an abundance of these types of chips. However, the availability of automotive and specialized chips remains limited. Increasing production takes time, as factories require years to establish. Furthermore, chipmaking equipment itself relies on chips, adding to the complexity. In short, areas where shortages still exist will likely experience limited supply throughout this year. However, if a recession occurs, the remaining shortages are likely to ease. Small businesses are finding glimmers of hope amidst their struggles. Sources:
Caution Persists in Kiplinger’s Business Spending Outlook Amid Slowing Economy
