Economic Uncertainty, Corporate America, and You

I’m studiously trying not to watch CNBC this morning and the continuing tumultuous negative slide of the financial markets. Markets are reacting badly to the unsatisfying political “resolution” to the U.S. bumping up against the debt ceiling. Although Congress acted in time to avoid a default, neither their constituency nor economists were impressed with how that unfolded and what it bodes for the future. That was reflected in S & P’s downgrade of the U.S. debt from AAA to AA+, and is part of what sent the markets back into a downward spiral this morning.

As a corporate employee, here’s why you should care, even if you aren’t an “investor”:

• You ARE an investor if you have a 401K. You may have lost a chunk of your value in the last several weeks. Reviewing your next statement will be unpleasant.

• Many corporations currently have strong balance sheets. Business has been fairly good over the last two years, and they have been stockpiling capital. That looks good on paper, but is a sign that they don’t trust the financial climate. Capital is a hedge against economic uncertainty. In better times, profits would be invested into growth – including the creation of new jobs. No new jobs – no new opportunities for you.

• A lack of job growth results in limited turnover. Workers are averse to making risky changes while the economy is weak. Corporations know this and some take advantage of the situation by asking people to work more and harder in order to retain their positions. Hard to complain when you know that there are eager job candidates waiting in the wings.

• As a corporate employee, you will experience continued budget constraints. Management wants to keep their financials safe. Expect mid-term budget cuts, especially in regard to salary/bonus increases, travel, training, and consulting. Expect a hiring freeze.

• While companies are still looking for places to cut expenses, your job may still not be safe. Hold off on making any major investments and any risky financial moves. Hold on to your savings; you may need them.

We’ll get through this economic uncertainty, but it’s pretty clear that global financial markets (not just the U.S.) are in a readjustment period where some of the norms have changed. Be aware and take precautionary steps to protect yourself and your livelihood.