War is bad for business. Yes, there are those companies in the "war business" that do great. But for the average business, it's lousy. Let's see why.
War is unsettling, especially to financial markets.The market likes certainty and in uncertain times, wild fluctuations are common. Although the immediate damage of the Russian invasion of Ukraine will be to the economy overseas, a strong ripple effect has already began to impact the U.S.
Last Thursday, the stock market plunged, with the Dow losing 830 points. Market Watch reported that in the first minutes of trading, 93% of the S&P 500 were down, with 71 stocks having fallen 4% or more.
Prices at the Pump
Russia is the world's third largest producer of oil, accounting for 10 million barrels a day, or about 10% of global production. Russia is one of the top exporters of oil to the U.S. - only Canada supplies more. The energy sector, prior to the actual invasion, had already begun responding by increasing prices in the belief that sanctions would impact supply. Oil prices increased more than 40% since December just on the speculation of a Russian invasion of Ukraine.
In fact, it is believed that imposition of harsh sanctions will prompt Russia to curtail its sales of oil and other energy products to Europe in response. Of course, this would be a painful strategy for Russia in the long run, as their economy is dependent on the sale of energy products.
$4.00 a Gallon by April
Patrick De Haan, an oil and gas analyst at GasBuddy, told CBS MoneyWatch that gas prices could rise five to ten cents per gallon over the next week, and hit $3.75 in the next two to three weeks. With warmer temperatures just around the corner, and a recovering economy, he is predicting that the national average will top $4.00 a gallon by April.
Food and Other Items
Although the U.S. imports little food or other items from Russia or Ukraine, the impact of the conflict will be felt here. As explained by Phil Lempert, a food marketing and consumer behavior analyst, “If a war does break out and other countries stop importing from them and shift to importing from the U.S., prices will go up (as following demand) and we could see some shortages.” Russia and Ukraine, together, account for 29% of the global wheat export market. If the war interrupts the supply chain, which is likely, world-wide food prices will be impacted.
The restriction in natural gas supplies will also impact the production of energy-intensive products such as fertilizers, which in turn will create difficulties and shortages in agricultural production, further impacting global food supplies.
Minerals and Metals
Together, Russia and Ukraine are also major suppliers of metals. Russia controls about 10% of global copper reserves, and is a major producer of nickel and platinum and other commodities (raw materials, chemical products, and even machinery, such as transportation equipment). Although the U.S. itself is not a major importer (except for metals and minerals) of many of the "other items", the EU is, and any shortages and supply chain issues there will quickly become problems for the U.S.
As reported in the Washington Post, "Ukraine is a large source of neon gas, and it supplies the U.S. with about 40% of its semiconductor-grade neon. A years-long shortage of computer chips has already hobbled the production of everything from cars to washing machines, and economists say further complications could make those shortfalls even worse. There have also been other logistical disruptions: Companies that fly materials and products from Asia to Europe, for example, are scrambling to reroute their paths away from Ukrainian and Russian airspace, said Phil Levy, chief economist for logistics company Flexport".
Will all of this stall the economic recovery?
As also reported in the Washington Post, the U.S. economy appears to be ready to surge, but the Russian invasion of Ukraine could slow the growth. Add the Feds' intent to battle inflation by raising interest rates, and the road ahead looks rockier than it did just a month ago.
What does this mean for small business
With an already tight labor market, U.S. companies are being forced to compete for workers, which in turn will necessitate increased wages. With the impact of wage growth, increased costs for energy, food, etc., the U.S. worker will be squeezed by inflation, which in turn will drive labor costs even higher. Higher wages, worker shortages and inflation may all combine to make the times ahead difficult for American business.
ASN is ready to help
With all the global uncertainty, one thing you can be certain of is that ASN will ready to help. Our staff of highly trained professionals will ensure that you will not have staff supply shortages. We are constantly searching for and qualifying top-notch workers to fill your needs. If you have any worries about future staffing, please give us a call, and together, we'll come up with a plan to fit your needs.