The Opportunity of Rising Costs
I had the privilege of sitting in on a meeting where a representative from a Japanese company had come to visit a potential supplier of raw material in California. (Yes, I’m being very vague on purpose). It turns out that their product, a substitute for what was a common, inexpensive construction product, could now compete in the Southwest by building a plant in, of all places, Southern California. Their product is a substitute product that on its own has not been economically feasible but because the product it could replace has increased so much in price, it seems to make sense for the company to at least pursue some due diligence.
So how does this impact your business? This is the time to dig into old sales files and look for the deal where your product or service was just too expensive, regardless of the features and benefits. It may be that the product, process or service you were competing against is now more expensive, takes longer to make or is just in short supply, and your product is now a viable option. In economic textbooks, this is called the Substitution Effect. As prices rise, products can be substituted for other, similar but cheaper, products or services. Go through those old files to see if you can find some gold.
And that’s your Econ 101 Lesson of the Week.
Here is your jobs update:
How many job openings are there in the United States?
11,500,000.
In a related story, the unemployment rate is 3.6% nationally. With that many openings, I would hope so.
There are 5,900,000 people looking for a job. That is almost a 2 to 1 job to employee ratio. I’m guessing those 5.9 million people are just looking out the basement window; that’s why they can’t find one.
The US added 428,000 new jobs in April.
To take advantage of all of the jobs out there, 4,500,000 workers quit their jobs in March; another example of the Substitution Effect.
Some may get added to the 11,500,000 but most just started at another firm, either closer to home or for better pay or work from home or all three.
1,400,000 workers were laid off – there really isn’t a better time to be laid off. You pretty much have your pick of jobs.
Anecdotally, a local restaurant is paying busboys with no experience $18/hour. How much experience do you really need to break a dish?
So here’s a thought. In the great recession, 9 million jobs were lost and more than 15 million people were unemployed. We have job openings of 11.5 million and 5.9 million people looking for work. If there even was a recession, how much of an impact would it be? I’ll have to think about that – I don’t have an obvious answer but I know people that know people who do. I’ll get back to you.
Oh, and the Federal Reserve raised their interest rates from 0.5% to 1.0%. This takes prime from 3.5% to 4%. If you are a prime rate borrower, your interest costs have increased 23%. You need to bake that into the rest of your 2022 plan.
Looking at taxes…
Some popular tax provisions are expiring at year-end. Unless Congress acts to extend the breaks for another year or so, the last time you can take them is on your 2022 business or individual tax return that you will file next year.
Among the expiring extenders:
The ability of businesses to write off 100% of restaurant meals, provided the cost isn’t lavish. Hmmm, I guess ‘lavish’ is relative.
Tax credits for biodiesel and renewable diesel. Did anyone know this was a thing? Turns out Union 76 stations sell renewable diesel.
It’s a tax credit of $1/gallon. That’s significant. If you are putting biodiesel or renewable diesel in your trucks – not from a gas station, but from a storage tank on your premises – you get that tax credit.
At a gas station, it is the gas station that gets the credit. That’s probably why Union 76 has so many locations offering it.
Also going away are the temporary enhancements to the premium tax credit available to eligible individuals who buy health insurance through an exchange – that’s a mouthful. This is where all users of either the state or federal healthcare exchange were able to qualify for tax credits. It was usually limited to people with income no more than 400% of the federal poverty line but the feds took the cap off.
Just in case you were curious, the federal poverty line is $13,590 with $4,720 added for each additional family member. That’s 17 hours/week at $15/hour.
Two tax breaks start to phase out:
The tax credit for installing solar panels, solar-powered water heaters and the like in your home falls from 26% to 23% next year.
And the 100% bonus depreciation write-off that businesses take for the cost of new and used qualifying business assets of 20 years or less drops to 80% in 2023. That was a pretty sweet deal, you have to admit.
Finally…
Talk about long odds… a Rich Strike
Rich Strike is a horse purchased for $30,000. It qualified to race in the Kentucky Derby only because another horse cancelled. It had 80:1 odds; make a $1 bet and you get $80. Literally coming from 17th place in the final turn, it maneuvered the field and passed the leader in the last 100 yards, earning the owner $1,860,000.
When you can, always take the opportunity to run the race! You may get a Rich Strike!
As we round the final turn heading into summer, get ready for the Summer Sales Doldrums – make sure you prep your people to take advantage of your competitor taking the summer off, because, you know, everyone else does, right? Don’t be that guy – this is the time of year to take business away from the folks not focused on keeping it.
