In last month’s article, I wrote about the uncertainty in the economic landscape. The issues were the extension of the debt ceiling negotiations, the continuing rise of interest rates, and inflation. Since then, an extension and increase in the debt ceiling has been accomplished. The Federal Reserve took a break from raising interest rates in June, but has given indications there likely will be more rate increases in the coming months. Inflation has slowed, but is still at an elevated level.
All of these things have an impact on your business, either directly or indirectly. Over the coming months, continuing changes to each are certain, so you’ll need to be mindful that your business is doing what it needs to do to thrive, and to survive.
One thing I didn’t include in the last article was the looming resumption of government student loan payments. Part of the debt ceiling negotiation was for student loan payments to resume on August 30. The payments and interest accruals have been in abeyance since March 2020. This was done by the Department of Education to ease the impact of the COVID pandemic, which caused the closure of many businesses, resulting in significant layoffs and an overall reduction in hiring.
An estimated 43 million people, approximately 17 percent of the adult population, have federal student debt. Of those, 26.6 million, about 10 percent of the adult population, had loans that were in abeyance in Q1 2023, according to the National Student Loan Data System. Once payments resume, the average monthly payment will range between $200 and $300, according to the most recent Federal Reserve data. It is estimated that, collectively, borrowers are set to resume paying around $10 billion A MONTH, according to recent analysis by JPMorgan.
That amount being redirected out of the economy means a number of retailers will likely be negatively impacted. According to UBS, those retailers include American Eagle Outfitters, Carter’s, Crocs, Foot Locker, Canada Goose, Nordstrom, Nike, Steve Madden, Under Armour and Victoria’s Secret. UBS Research did a survey in March 2023 and found the average student loan borrower is younger, likely to be single, female, and earn slightly less than the average U.S. consumer.
Undoubtedly, these retailers will be affected, and so too will your business. And as with these other retailers, the reduction in consumer spending will back up through the channel supply chain, affecting distributors and manufacturers.
On top of the restarting of loan payments and interest accrual, the Supreme Court’s ruling on June 30 declaring that the administration’s plan to forgive almost $430 billion of student debt is unconstitutional, will have a further chilling effect on consumer demand.
As bad as that sounds, there is a small silver lining. That much money being redirected out of the economy will reduce demand across the board. The Federal Reserve has been hoping that would be one of the results of their raising interest rates. How much and how soon remains to be seen, and is why the Federal Reserve did not raise rates in June, but has strongly suggested additional rate increases may be needed.
Reducing demand is also a step in possibly helping to lower inflation. The extraordinary post-pandemic demand for consumer goods outstripped most retailers’ ability to supply. The reasons are well known. Shortages drove up prices on everything from printer cartridges to automobiles, in some cases making used cars more expensive than new ones simply because used ones were more readily available.
As noted in my previous article, running your business to your budget in the coming months will be crucial given all the outside influences. Understand and manage what you can control, because a lot of what will be affecting your business you can’t control. Right now, the one thing you can count on is it’s going to be a very challenging selling season.
Contact Steve Bina: firstname.lastname@example.org