Talk of a possible recession is a major topic in the news cycle right now. From rampant inflation to continued supply chain woes, the general attitude about the economy has been quite negative. What remains to be seen is if a recession is actually coming in the near future.
Curtis Dubay, chief economist in the Economic Policy Division at the U.S. Chamber of Commerce, says that currently there is a 50/50 chance a recession will take place in the next few years.
He says that Congress and the Administration can help by using immigration to put downward pressure on wages and not passing another major spending bill. However, the Fed has to be the main driver of bringing down inflation in order to avoid a recession.
“They’re not going to take inflation down by themselves, but they help on the margins,” Dubay says. “And when you’re at a 50/50 chance of a recession, every little bit helps.”
While there are boom and bust cycles in the economy, Dubay says recessions are not inevitable.
“The U.S. economy will grow absent of outside shocks like a pandemic, or internal shocks like a financial crisis or policy mistakes, either fiscal or monetary,” Dubay says. “So, recessions are never inevitable. You never grow yourself into recession.”
He says that businesses and consumers are both in a lot better shape than they were when the last recession occurred. Businesses have lower levels of debt, and the loss of jobs is not likely to be as severe.
Dubay says that perceptions matter a great deal when it comes to the economy, and they can push things one way or another. People’s current negative outlook is a result of high gas and food prices cutting into their budgets on a daily basis.
How Landscape Companies Are Responding
Landscape professionals are mixed on if they believe if a full-blown recession will take place or if there will be just a cooling period after the past two years of overheated demand.
“I just think when you see gas prices and interest rates climbing, inflation as high as it’s been in 40 years, I don’t know how we don’t have an issue,” says Chris Joyce, president of The Joyce Companies, based in Marstons Mills, Massachusetts.
Joyce says after the last recession, they restructured their business from being a more install-based business to add more recurring revenue with maintenance.
“If you don’t have a base of recurring revenue when stuff gets tight, it’s very challenging because you don’t have that book of business,” Joyce says. “And the other thing too is that recurring revenue creates install work for you to even in bad times.”
Mike Bogan, CEO of LandCare, based in Frederick, Maryland, believes that it is likely there will be an economic correction in the near future.
“I’m not a prognosticator to say how big or how prolonged or how significantly it’s going to impact us, but we’ll have a rough stretch in front of us in the next few years,” Bogan says.
He says he expects to see discretionary spend reduced with their clients and other landscape businesses turn to commercial maintenance to keep their people employed as the sector is a little more recession-proof.
“What I mean when I say that is in the commercial maintenance industry, these properties will need to be maintained regardless of what’s happening with the economy,” Bogan says. “If their buildings are full, they need to keep their tenants. If their buildings are not full, they need to market them to new tenants. We have a saying in the commercial maintenance world that it doesn’t matter what happens with the economy, the grass continues to grow and we’ll be here to take care of it.”
Even when things tighten with commercial maintenance, Bogan says the discretionary spend is just deferred, rather than eliminated.
“The maintenance or repair work that needs to be done, or enhancements that we don’t do, we’ll end up doing them in the years following,” Bogan says.
Likewise J.T. Price, CEO of Landscape Workshop, based in Birmingham, Alabama, isn’t sure how bad the recession will be, but is focusing on their recurring revenue with commercial maintenance.
“We’re being disciplined and making sure that we have plenty of cash on hand,” Price says. “We’re not treating the current good times as a permanent fact of life.”
On the residential maintenance side, Krisjan Berzins, founder of Kingstowne Lawn & Landscape, based in Alexandria, Virginia, believes a recession is possible, but it won’t be as bad as the one in 2008. He says they’re not being as aggressive with their spending when it comes to large purchases like trucks and equipment to keep their debt under control.
“When the economy cools and things start to slow down what you start to see is landscape install and design/build may take, in many cases, the biggest hit,” Berzins says. “If you’re relying solely on that or very heavily on that you could be more likely to feel the adverse effects of it.”
Despite the doom and gloom headlines, many landscape companies have been experiencing a strong year so far in business. Kingstowne had their best year of all time last year with 25 percent growth. Berzins says he expected things to cool down, but so far, this year is not far off from last year’s growth numbers. He is cautiously optimistic.
Similarly, Price says if he just looked at the metrics for their business, he would say everything is great. But he is being conservative in the context of the broader economy.
“We all think a recession is coming, but our business is as good as it’s ever been,” Price says. “Production backlogs are very strong. Our enhancement backlogs are very strong. We’re getting our pricing increases from our customers. This is probably going to be our best year ever, but we all have some trepidation about market conditions.”
Joyce says business has been excellent this year and Bogan says they’ve had a strong first half in 2022 as well.
While consumer confidence is cautious as they are aware of the possible recession, Bogan say they haven’t had any clients coming to them saying they need to reduce their spend. Price says on the commercial side, demand is as strong as it has ever been. Joyce says the consumer confidence in his area is better than most marketplaces.
“The buzz is out there,” Joyce says. “What’s coming? Are we going to hit a recession? What’s it going to be like? How long is it going to last? But there’s still a tremendous demand for work.”
Berzins says they have increased demand as well. However, he has seen a little bit of pullback on the design-build jobs where consumers are eliminating some of the upgrades. He says their customers are upper middle class, with a disposable income, but they do have a budget, so they aren’t as willing to spend wildly. All four companies say there are still growing their businesses and expect it to continue.
“Recession is on people’s minds, but we’ve not yet seen anything change,” Bogan says. “Things haven’t slowed. Right now, it just feels like runaway inflation. We’re seeing fuel prices up and payroll expectations up and material prices up.”