I’ve often said that when a rock hits the water halfway around the globe, we can feel the ripples here. The world is shrinking, and news moves at lightning speeds. It’s no secret that domestic manufacturing has been decreasing and moving overseas for decades. Clothing, shoes, tools, appliances, auto parts, vehicles and many more are being produced overseas.
Our current administration has been trying to bring production back to American soil. In an effort to level the playing field with our trading partners, it has implemented tariffs. All the confusion and speculation regarding them has created some uncertainty for many American consumers.
The fear is that higher costs will emerge when the dust settles. Right or wrong, this period of uncertainty has caused consumers to be quite a bit more cautious with their spending. Historically, a telltale sign of belt tightening has been when local news stations conduct taste tests between national brand foods and lower cost store brands.
Sure enough, right after the August 1 trade deadline, I saw one of those taste tests on the news. It appears that cautious consumers are also value-seeking consumers. As they should be.
The CEO of western Michigan based Whirlpool Appliances recently told shareholders that consumers were drifting toward lower-end products. I believe the same situation exists in the auto industry. Base models are outselling luxury models. Last week, the owner of a nuts-and-bolts manufacturing company told me that, although he couldn’t quite put his finger on it, he felt that something was going on in the economy. Something unsettling. I also recently spoke with a podiatrist friend who said that elective surgeries were down significantly.
So, a local news station, a large corporation, a mid-sized manufacturer, and a respected physician all see consumers behaving and spending differently. I don’t think we need an economist to tell us the economic winds have shifted.
I’m not suggesting that the sky is falling. The wind analogy is more appropriate, because we just don’t know which way it’s going to shift. What I am suggesting is that you be proactive rather than reactive. Review your investments to make certain you’re positioned the way you need to be if an economic storm does hit. For example, if you have a large expenditure coming due, such as a college tuition bill or down payment on a property, be sure those dollars are in cash. You don’t want them tied up in a long-term investment. They need to be readily available, like sitting safely in the bank.
My point is that, as investors and consumers, it’s better to act before the shifting winds settle. Waiting until after could lead to disaster. For most long-term investors, being proactive would likely require little or no adjustments. But reacting after a shift could require major and costly maneuvering.
So, it’s critically important to be cautious in the midst of economic uncertainty. And that especially means being in total control of your spending. Don’t ignore rising costs by maintaining normal spending habits and running up insurmountable credit card balances.
There have been many subtle signs that an economic storm is gathering. If the economic seas get rough, the investment world retreats, and prices increase, the storm will have arrived. You need to be prepared. And hope it passes quickly.
Email your questions to kenmorris@lifetimeplanning.com
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