What does 2014 have in store for us? As we put a quarter under our belts, we have had time to see some trends emerge. Like what? Well, Germany, Turkey, and China are emerging as quite the dark horse wine-producing regions; designers are using colors “inspired by mixture of blooming flowers, travels abroad, and strong, confident women,” and apparently something called “Mychiatry” is going to get big. It’s when the “mind is the new body,” and it seems to involve lots of apps helping you track your wellbeing and increase profitability. You were expecting trends that are relevant to your business? Well, they’re not as much fun, but sure, let’s take a look at those too.
A few prominent trends with the potential to impact your bottom line:
Slow Growth but Strong Profit Margins
As of the last census, there were over 27.75 million businesses in the US. Want to guess how many are publically traded? A mere 5008. Private companies contribute nearly half of the annual GDP, and they’re responsible for 65 percent of new jobs. They are critical to the economic health of the country – but how healthy are they?
Sageworks, an online resource for financial analysis and data of private companies, issued a report recently to address this question. They found that private companies grew by 6.7 percent in 2013, the most sluggish growth since 2009. But, and this is an important but, they showed strong profit margins. Let’s look at the Real Estate, Renting, and Leasing industry, for instance. While the sales growth rate slumped from 7.9 percent in 2012 to 6.3 percent in 2013, the profit margin increased from 9.9 to 17.3.
What does this mean? It could indicate that owners are more cautious about spending. They’re holding on to profit or paying down debt, rather than purchasing new equipment or hiring new employees. Sageworks Chairman Brian Hamilton says that private companies seem “shy about growing” in this climate. This trend of cautious spending during a time of slow growth ensures that profit margins don’t wear thin as sales decline or stay flat.
This is a trend most assuredly not inspired by “blooming flowers”! What do people do when it’s -20 and another snowstorm is on the way? Hint: the answer is not “spend money.” We tend to hunker down and wait for the storm to pass. We’re still waiting! Federal Reserve Chairwoman Jane Yellen says, “It’s really quite a range of data that has been soft recently. I think it’s clear that…unseasonably cold weather has played some role in much of that.”
Cold and snow did a number on agriculture, manufacturing, construction, retail, and other sectors in the first quarter. Evan Gold, who tracks and analyzes the impact of weather for Planalytics, estimates that the tenacious winter cost the US economy about $15 billion that it won’t recoup. Opinions vary, however. Capital Economics’ Paul Dale actually thinks the cold winter could add 0.3 percentage points to annual GDP growth because of its positive impact on business investment in mining.
But let’s leave thoughts of winter behind. There is a glimmer of sunshine on the horizon. Economist Chris Christopher says, “If the first quarter takes a little hit there’s going to be some bounce back to make up for it in the second quarter. For the year as a whole this should not have much of an impact.”