Sarthak Joshi

FE-0222-10041
Marquee Equity
1st August, 2022
Upcoming recession in the USA and its effects on the start-up and
Fundraising environment.
What is Recession? To a layman, recession may be a sustained period
when the economy face a negative growth and there is decrease in their
GDP (output) and simultaneously they also face issue of unemployment
as it start to rise, sometime slowly sometime rapidly. But if explained in
economic term; a recession may be a business cycle contraction when
there is a general decline in economic activity. Recessions generally occur
when there's a widespread drop in spending.
In present trends view, USA is on its way towards recession. As per
experts, by 2024 there are chances of recession in USA. Earlier it had
been believed that recession will strike USA only once a decade but
current trend seems to say otherwise. The last recession in USA was
around 2007 which happen thanks to decade long expansion in US
housing market policy which peaked in 2006 causing to losses on
mortgage-related financial assets began to cause strains in global
financial markets, and in December 2007 the US economy entered a
recession1. This was also termed as “The Great Recession”.
Now back to present situation USA is currently in recession by global
standards. Previously during the pandemic, USA suffered from slight
recession as there was loss so many jobs. Its effect remains being
calculated but it was considered the shortest recession but it was eased
due to online purchases, zero interest rates and printing of enormous
amount of money by FED to boost up the stock market. But after two year
of pandemic they're facing decline in their GDP. As stated by Investment
week:
US GDP contracted 0.9% within the second quarter of 2022, putting the
country into a technical recession after two consecutive quarters of
negative growth. The GDP numbers defied expectations, with experts
predicting 0.5% growth. This followed a contraction of 1.6% within the first
quarter of this year putting the US into a technical recession by global
standards.2
Recession also affects business weather they're small, big, old or new.
Businesses large and little face declines in sales and profits in a
recession. Their efforts to chop costs may include layoffs and cuts in
capital spending, marketing and research. Recessions may curb credit
access, slow collections, and spur business bankruptcies. Small firms or
new businesses may suffer from income issue as people will delay
payment. All of those lead to cost cutting by firms to get respectful return
on their investment and also firm may fire employees to reduce expenses
and all these will leads to increase in recession.
Fundraising also becomes difficult in times of recession as there already
is a smaller amount money in circulation and also people don’t want to
spend money so donations decrease during recession as people prioritise
their own immediate needs. Consistent with a report from the Charities
Aid Foundation (CAF), the entire value of donations in the UK fell by11%
between 2006/07 and 2007/08 as fewer people gave to charity and in
smaller amounts.
But still there are some ways during which you can increase or if not
increase then at least maintain around same donation as the period before
recession. A number of the ways are like one must make people clear of
your cause and maintain a clear and strong message but make sure to be
sensitive to struggle of your donors. Also have more target specific
demographics. Also as seen in recent times during pandemic one must
attempt to invest in digital fundraising, it not only include social media
promotion but also cash less digital transaction.
Although most of the industries suffer during recession but still there are
some industries which thrive during recession like healthcare, food,
consumer staples and basic transportation. Companies that make basic
necessities like consumer staples and food will always have demand,
even during an economic downturn - as people have to prepare meals,
wash, and clean, and so on. Discount stores often do relatively better
during recessions because their staple products are cheaper. Similarly,
healthcare is usually in demand. As these industries are relatively inelastic
industries in order that they can perform well even during the time of
recession. This is often the reason most of these industries attract
investors attention towards them during recession.
Now because the recession is most likely to happen in America in few
years it will have many effects. There are some long-term effects like
higher unemployment, lower wages and income and lost opportunities
more generally. Also education, private capital investments, and
economic opportunity are all likely to suffer within the current downturn,
and therefore the effects will be long-lived. There also are some short-
term standard monetary and fiscal effect like credit availability tightens,
and short-term interest rates tend to fall. Also there'll be reduction in
consumption rates, which causes inflation rates to travel down.
Basically at time of recession economy struggles and other people loss
their work and there is less money in circulation as consumers spend less,
affecting company and reducing income of individuals and increasing
unemployment which in turn leads to less production and ultimately
reducing GDP (Output). As mostly told by experts that the upcoming
recession is impact of pandemic but there also are some other reason like
failure of business and investment plans.
Although recession is difficult time for businesses but it are often
countered by making certain plans. Entrepreneur must take care of their
finances properly, they need to build up an emergency fund which can be
used whenever there is less cash flow in market. Use the foremost cost-
efficient methods even on the time when there is no recession. Build
Customer Loyalty in order to that even during the time of recession at least
some of them keep coming to purchase goods and service. First you need
to be loyal to your customer before they became loyal so you must always
treat your old customer with utmost respect. Finally most vital is that you
don't wait for a recession to prepare for a recession.