What you need to know now. In this Tough Things First podcast Ray Zinn demystifies the troubled waters so we can all get it and look forward. Call it Part 1.
Rob Artigo: Good to be back, Ray. Nice to see you. Thriving amid uncertainty and handling adversity. That’s what we’re talking about here in this podcast. 2025 has been a wild ride so far, and I’m not really overstating that, am I?
Ray Zinn: What’s interesting is last week I met with the Montana Secretary of State and her team. I gave this talk on leadership. It went fine except they wanted to ask some questions about uncertainty in the world and especially in the US economy. So, I thought that was interesting and appropriate, why we should cover that and discuss it today because foremost in everybody’s mind is what impact, inflation? Is there a recession pending? What about interest rates? What about tariffs, and what’s going on with the stock market? So let’s talk about them kind of individually, just as I listed the topics that I covered.
So, if we look at inflation, what’s happening with inflation? Well, you’re probably getting this on the news, but inflation looks like it’s abating. In other words, it came down some last month. Will it continue to come down? There’s a big speculation regarding the effect of tariffs, so let’s talk about tariffs before we jump into a recession.
Tariffs are meant to level the playing field between countries and especially those that sell to the US, so that’s been bandied around and beat up quite a bit over the last week or two. Tariffs are meant to, at least the way that the Trump administration looks at it, it’s meant to bring the other countries to the table and negotiate with them a better term so that we can sell to them. It’ll have a big impact on Ag culture. The Ag culture is the one that’s going to benefit the most from these tariffs released.
Now, the other countries which are selling cars, refrigerators, dishwashers, consumer electronics and so forth to us because the labor is cheaper in those countries is the big debate. That’s where everybody is having a proverbial fit over it. Depending on how fast we can bring automation back to the US or automation in the sense of the word of reducing the labor costs, that will help that issue regarding the products that we offshored to reduce the cost of the product and the labor to produce it. So if we get more automation, AI and so forth, that really helps us, and we’re able to produce in this country at the same when we offshored it, then there won’t be any impact on the product that’s coming into the country.
If we have multiple countries that produce the same product, then there’s some competition, and that could impact or at least minimize the effect of the prices on the product coming in because of the competition between countries. So, this all depends upon what kind of products that are going to be onshore versus offshored and just how fast we can go to full-blown automation or AI, as some people refer to it.
The biggest impact on this is going to be on consumer electronics, clothing and that sort of thing. I think Trump has now backed off on tariffs on consumer electronics, so that’s kind of been settled. Clothing? Again, that’s all a function of automation and what countries will compete with each other. There’s a lot of countries that are producing clothing, so that won’t have as big an impact if they’ll compete with each other. I’m not sure how big of an impact that’s going to be on pricing for clothing because I’m not sure. I don’t believe we’re going to produce much clothing here in the US. We’ve kind of lost that skill, that art as you would, and those other countries have picked up that capability, and there’s a lot of labor involved in making clothing.
What impact will that have on our economy as far as interest rates and so forth, and are we looking at a recession? So the Fed, federal banking, looks at things like inflation and whether or not the economy is growing or recessing. Of course, to get the interest rates down, you have to lower spending. In other words, you’ve got to drop demand. So when you drop demand, then of course the GDP will minimize, which you’re going to have less GDP growth, which brings me to really talking about the business cycle.
So in Q1, quarter one, which is January through March, that’s our weakest quarter. In fact, it’s coming off of Christmas, and Q1 is a very weak quarter. So, we’ll start seeing the numbers on how Q1 went in another month or so. Not in a month. Let’s say another few weeks, actually, as these companies start reporting their results.
Q2 is typically a more upbeat quarter. In other words, you’re coming off of the down Q1, and Q2 which is then April through June should be a better quarter. So, all eyes are on how bad was Q1 and how good does Q2 look? We won’t learn about Q2 until probably August. Well, early August, late July. So, you can see kind of the timing. We’re in a no man’s land because we’re coming off a weak quarter, so we don’t expect great results. If we get decent results off of Q1, that’ll help the stock market.
So then Q3, which is July through September, is our strongest quarter. In other words, that’s the best quarter of the year. Again, we don’t get results on Q3 until more like late October, first part of November. Then Q4, which is October through December, is a slower period. Let me back up a minute, going back to Q3, so Q3 is building up for Christmas. Christmas is our strongest season and even worldwide. That’s why Q3 is generally a stronger quarter, and Q4 is more of a flattish quarter. We don’t expect hardly any growth because you’re coming off of Christmas or you’re in Christmas as you would. I’m not sure that you’re going to get a big bump in Q4. Then back to Q1, which is a bad quarter or a weak quarter.
So, we’re all looking at the numbers, looking at how the companies report, and that will definitely impact the stock market. Is there going to be a recession? In order for interest rates to come down, GDP has to slow. Okay. When GDP slows, depending upon what political bent you are, you’re going to scream your head off. If the GDP comes down and it’s looking like we’re getting into a recessionary period, and the other side is saying, “Well, look. We’re naturally transitioning from a no tariff to tariff, so that’s having some impact.” What impact will that have on inflation depends again how the government negotiates these tariffs.
So, are tariffs good? They can be. Are tariffs bad? They can be. So, it just depends upon how well you manage that. We really didn’t have an income tax in this country. We used tariffs to raise our government spending, and therefore there was no need of income tax until we backed off of the tariffs. Then we had to go to an income tax in order to cover the government spending.
I know it’s a lot of information that we’ve beat around, but you can see that it’s kind of a wait and see. We haven’t had big tariffs for many, many years. Probably 40, 50 years since we’ve had any kind of a tariff situation or a tariff issue. We’re marching at a new territory.
When will interest rates come down? They’re going to come down when the Fed decides that the economy is in trouble. We need to lower interest rates in order to encourage spending, so you can see it’s kind of a what if type thing, depending upon what the economy does that will decide whether or not interest rates are going to come down.
Are we going to have a recession? Well, depending upon what kind of recession we’re talking about. Are we talking about just a reduction or slowing in GDP? Do you call that a recession? Well, if you’re more liberal, you’re going to call that a recession. If you’re more conservative, you’re going to say, “No, that’s just a natural slowing. That happens on normal business cycles, which occurs every three to five years.” So, everybody is going to be painting the picture that they want to make everybody understand what they believe is what’s going on in the economy.
I don’t think the recession is going to be terrible. There is going to be a slowdown, if you want to call it a recession. That’s what recess means. Recess means to slow down. Are we going to go into a depression? I don’t think that’s the case because we’ve got too many levers we can pull to prevent a depression. So anyway, that’s a short tutorial on the state of the economy, Rob.
Rob Artigo: Well, Ray, you covered a lot of territory there. Very interesting stuff. It’s a time in our history really where that stuff, it’s important today, and it’s going to be important for the rest of the year as things fluctuate. We don’t know what other countries are going to do. We don’t know how the tariffs will change things with some countries and how it will change things with us in some areas. It would be interesting to listen to what your take is throughout this year. We’ll try to do this more often. So, join the conversation at toughthingsfirst.com. Your questions and your comments are always welcome.
Ray Zinn: Hit me with an email on toughthingsfirst.com. I’ll be happy to answer them if you have further questions. If you would like to see more detail on this subject, please feel free to let us know. We’re happy to revisit this discussion. In fact, we’ll do it every quarter. So, if you chime in every quarter, we’re going to give an update on the economy.
Rob Artigo: Follow Ray Zinn on his X, Facebook and LinkedIn, and of course, Ray’s books. You’ve got to pick them up. Tough Things First is the big one, his first book. As you know, there is the Zen of Zinn Series 1, 2, and 3. On sale now, The Essential Leader: 10 Skills, Attributes, and Fundamentals That Make Up The Essential Leader. Thanks a lot, Ray.
Ray Zinn: You’re welcome, Rob.
Rob Artigo: Now announcing, The Essential Leader by Ray Zinn. 10 Skills, Attributes, and Fundamentals That Make Up The Essential Leader. Watch for it as it arrives at your favorite retailers in paperback and digital format. It’ll be everywhere by the official launch date, March 12th. That’s The Essential Leader by Ray Zinn. Don’t miss it. Thank you for listening to the Tough Things First podcast.
