Primer on the Economy and its Impact on Coaching
by Steve Buisson
Steve Buisson
Economic news updates have dominated national headlines recently, replacing daily updates on COVID-19 pandemic cases and deaths. Although with much different consequences, the morbid tone on the economy remains. How do businesses, and in this case coaches with private practices, interpret the barrage of economic news?
Clearly the economy is reaching some sort of inflection point as observed by the wild gyrations in the stock and bond markets over the past several months. Increased volatility is a certain sign of increased uncertainty. How do coaches parse through a litany of acronyms, announcements, and indicators of the health of the economy while trying to understand the message through political rhetoric added by the newscasters? Perhaps some context on these terms may provide clarity.
Coaches need clients to coach. Clients need a reason to be coached…and the money to pay for it. Working clients come to coaches from a variety of industries and professions, but also those who may not be working use our services. Some clients pay for coaching out of their own back pockets while others are sponsored by their employers. A good litmus test for this is to start by examining the state of the economy.
Understanding the economic cycle
Academics typically cast the economic or business cycle into four broad categories: Expansion, Peak, Contraction, Trough
Expansion is characterized by rapid growth and favorable business conditions such as low interest rates and low, but potentially building, inflation. Also common here is full employment. Corporate confidence is high as evidenced by strong investment in infrastructure, capital projects and people.
Peak is characterized by maximum growth and full employment. Also, wage growth is apparent, and signs of inflation appear. Consumer confidence is also peaking which leads to high levels of consumer spending. If central governments become too concerned, they may begin to raise short term interest rates.
In the contraction phase, we typically see a release of the pressures built up from a strong economy through corrections in various indicators. Often growth, as evidenced by low or negative GDP, slows, unemployment rates rise and prices begin to stagnate. Also one might observe consumer confidence begin to waiver with a drop in future expectations.
The trough of the cycle is reached when most of the economic indicators have poor readings. GDP has continued to slow or contract. Unemployment is peaking and consumer sentiment has bottomed. Rates probably have peaked and governments may even be lowering borrowing costs to spur the economy.
Where are we today and where do we go from here?
Most likely the US economy is in a contraction phase. Gross domestic production has been negative to slightly positive this year so far while the country continues to be close to full employment. However, with the pandemic and wars around the world keeping inflation persistently high, the Fed has been raising rates to temper price increases. This is further evidence that the peak has passed. Consumer confidence continues to erode and spending has significantly reduced. From here expect a trough in the not too distant future based upon the extent that central government banks continue to raise interest rates.
Impact on coaching
Expect the impact on coaching to be very uneven. Corporations turn their attention back to their high value employees and look for ways to provide value to them without increasing their payroll expenses. One way to increase the value proposition is to invest in the well-being and effectiveness of employees through coaching. However, as the average consumer continues to be bombarded with news headlines announcing the next downturn and eminent recession, expect a more cautious approach to spending.
As a former business unit Chief Risk Officer of the 6th largest US bank and an executive coach, Steve Buisson helps successful, but overwhelmed executives achieve the focus and balance they need to lead their organizations well and leave a legacy of meaning and purpose for others. Steve is also the President of Triad Coaching Connection.