The Department of Labor gave Americans hope Friday morning announcing that the unemployment rate has fallen to seven year lows at 5.5%. This drop came after a surprising February where the US economy added 295,000 jobs. Despite the heavy snow and cold that blanketed much of the country last month, employers, particularly in the retail and services industries, found reason to increase their payroll.
Despite the improvement in unemployment rate, all-out optimism is being held in check by disappointing wage growth. Wages rose only .1 percent last month. Many assume wage growth is only lagging behind the improving unemployment rate, waiting for the job market to tighten. Some economists even point to a demographic shift, as higher paid baby-boomers retire, and younger millennials enter the job market at lower paying jobs. This change affects the average.
So unemployment is down. Wages are expected to rise. Should we bust out the champagne? Many investors say no, at least not yet. Mark Cuban, the billionaire “Shark Tank” investor recently warned of another potential tech bubble like back in 2000. "If we thought it was stupid to invest in public internet websites that had no chance of succeeding back then, it's worse today," he commented on his blog. He and others claim that crowdfunding sites like Kickstarter have made it easier for bad ideas to get funded by uninformed individuals. This creates significant economic risk as it not only creates another hi-tech bubble, but also produces a liquidity issue for these small investors who have invested their life savings into these risky ventures.
Another 2000 tech bubble or 2008 housing bubble type burst could be catastrophic, sending our just recovering economy back into what economists call a “double-dip” recession. Fortunately, we do learn from our mistakes, and the Fed is doing what it can to make sure banks are prepared for another slide backward. Recently the Fed put all big banks, including foreign subsidiaries, through stress tests to judge their financial health. Improved capital levels by most banks indicate improved security against another financial crisis.
So what does all this mean for you as a small business? It means that while the economy shows significant signs of improved health, as a business you must protect yourself against bad investments and overextending your capital. We are not out of the woods yet and you don’t want to be caught out in the cold if any of these risks come to fruition. Know how your banks performed on their stress tests and do your due-diligence before investing your money.