GSA Schedule – Recession Insurance Policy
PrefaceA client told me the following in 2010-2011 “I believe that the GSA Schedule obtained by our company saved our business during the last recession.”
USA has experienced 9 years of consecutive economic expansionRecent economic news is good and firms generally do not explore alternative sales channels such as government sales when the private sector is performing well. In many cases businesses are having a hard time keeping up with current demand from existing customers such as the construction experience and in information technology.
Reasons not to have concern – Past 2 Recessions were caused by bubbles:
2000 – dot.com bubble
2006 – housing bubble
Asset classes that are significantly over valued do not seem to be present in the US economy. These bubbles create the future “wrecking balls.” Additionally tax cuts have provided more capital to businesses and consumers which appears to have accelerated GDP Growth.
The Devil’s Advocate:Studies conducted by the San Francisco Federal Reserve the economy has a 25% chance of entering a recession in any given year. This percentage is not effected by how many consecutive years in a row the economy has previously grown, it is just 25% per year.
Why does the Fed have this position when there are no bubbles currently present? The reality is that most recessions are triggered by mistakes made by the country’s central bank. Either raising interest rates too quickly, or keeping them low for too long creating bubbles. Tweaking too little, too much too late, etc. The US Fed has a lot of factors pros/cons built into every move it makes in federal contracting.
An alternative viewpoint is the Australian economy which is in its 26thconsecutive year of economic expansion, the longest of any country since WWII.Australia has a central bank similar to our Fed however their central bank has a much tighter set of parameters. It never chases the economy.
Federal Reserve Studies show that the most forward indicator as to whether the economy is about to go into a recession or not is the spread between the 10 year and 2 year Treasury note. When this percentage is positive and large it is a sign those participating in the economy see a better long-term future. When this spread goes negative it is the strongest economic bellwether for a recession. Currently this spread sits at .42% and has been in a downward trend since 2014.
I am bullish on the US economy, but I have seen from personal experience that it is far easier to get more federal work when you are an existing contractor ‘first in the door” than when you are the one jumping in during harder economic times.
Conclusion: In the end I think the 25% is a fair number of the likelihood of a recession we watch the Fed continue to make this major move from 0.00% interest rate in 2015 to +3.00% in 2020. So even though everything in the economy appears to be humming along GSA Modifications know that behind the scenes potentially high impact changes are taking place.