What’s in store for ‘24

Heading into 2024, woodshop owners might be concerned about slower housing starts and rising interest rates. In mid-August, Freddie Mac reported that the average interest rate on a 30-year, fixed-rate home loan had climbed to 7.09 percent, the highest it has been in more than 21 years. And it was pushed there intentionally by the government through manipulation of the federal funds rate.

The federal funds rate is the interest rate at which banks trade funds with each other overnight. When one of them has extra money, it can lend that to other banks that need it in a hurry. The rate is one of the keys that determine the interest rates we pay throughout the economy on everything from mortgages to machinery loans. Between July 2022 and July 2023, that rate climbed continuously with no dips in the chart, going from 1.68 percent to 5.12 percent. So, over the course of the past 12 months, the rate has tripled.

Despite all the vitriol, politics do not seem to help. The two parties over the past few years have used our credit rating to amass a national debt that should scare the living heck out of our children and grandchildren. In 2000, it was under $6 trillion. By 2008 it had hit $10 trillion, and since then it has screamed up to more than $31 trillion. Despite an abundance of blame, the various occupants of the White House do not seem to have had much of an impact either way. The chart just keeps on rising.

Now, self-imposed increases in interest rates are about to have a huge impact on that debt.

While raising rates can curb inflation (the Federal Reserve says inflation dropped from 8.26 percent in August 2022 to 2.97 percent in June this year), it will also dampen productivity. According to the International Monetary Fund, estimated growth in the gross domestic product (GDP) for 2023 is 1.6 percent, down from 2.1 percent in 2022. In simple terms, GDP includes every product and service produced in a country. The latest numbers for the U.S. say that we are not producing as much as we were, which means the government will be able to collect fewer taxes to pay off the national debt, which is rising because the government has raised interest rates.

These patterns suggest that woodshop owners who are looking to invest in machinery, inventory, robotics, and other technology might be best advised to do so sooner rather than later, and with a fixed interest rate.

While the climb in rates is not as steep as it has been, it is still upwardly bound. A July article by Alex Halperin in Business News Daily also suggests that “alternative funding sources are becoming more common for small businesses and may be an important option as interest rates rise.” Those can include grants, venture capital, angel investors, peer-to-peer lending, and crowdfunding, to name a few.

The Bureau of Labor Statistics says that unemployment in July remained unchanged from the previous four months. That is the percentage of the population over the age of 16 who are actively searching for jobs. April was 3.4 percent, May 3.7 percent, June 3.6 percent and July 3.5 percent. Those numbers say that it is not getting any easier to hire competent employees. In January, a Forbes article noted that about 40 percent of small businesses are now struggling to attract new employees and another 21 percent are concerned about keeping their current employees.

The other side of that coin is that robotics are becoming more affordable as new manufacturers enter the field, and new designs and capabilities mean they are much more able to pick up the slack. When a shop loses low-skill employees, it can often replace them with technology that can load and unload, move, inventory, make, stack and coat parts. Over time, robots are usually less expensive than employees, so it is inevitable that their numbers will continue to grow.

The emergence of artificial intelligence (AI), where the robot ‘learns’ as it works, will add countless new options for shop owners. A good example of AI growth in the workplace is generative applications that use large language models (LLMs). Those are the computerized voices (bots) that now answer phones and provide customer support. This type of AI can already have real ‘conversations’ with living people, so it is not hard to imagine it taking over middle management in a woodshop.

Unfortunately, AI will also change a lot of ground rules in the very immediate future. Earlier this year, Elon Musk, and several noted AI experts from companies such as Stability, Apple and Pinterest wrote an open letter saying that AI is becoming human-competitive at an alarming rate and poses a potential risk to humanity and society.

CNCs took decades to become mainstream. Robotics took a lot less than that to appear on the shop floor, especially cobot arms that work safely alongside humans. AI is moving far faster than those technologies and is something that every woodshop owner will need to address over the next few years. Our industry is increasingly automated and the software that drives it is evolving at startling speed.

All that technology means that there is a new trend in business insurance. Just like woodshops, this traditionally conservative business sector is becoming more automated. Customers are demanding websites where they can go in and tailor their interaction with the insurer, rather than waiting for an agent to show up at the shop.

Because of apps and other programs covered by the umbrella of financial technology (now called ‘fintech’), woodshop owners are a lot more tech savvy nowadays. They want to be able to customize their policies from menus, rather than accepting a one-size-fits-all solution. A shop with several CNCs and a large investment in robotics has different needs than a business using all traditional machinery, or one that relies exclusively on outsourcing.

Custom insurance policies can reduce premiums when a shop is no longer buying coverage for risks where it has no vulnerability. It can also speed up claims and get the shop back into production a lot faster after an event. To work, customization requires that the two parties (insured and insurer) acknowledge that times have changed, and the needs of both are now different. Insurance companies are finding it hard to locate employees, too, so having the customer do some of the work is appealing to them.

Expect to see a lot more phone apps, and a lot more flexibility in insurance over the next couple of years. Various government bodies – from local building departments to OSHA and the Internal Revenue Service – are also encouraging woodshops and other small business owners to go online to solve problems themselves, rather than relying on a paid employee to answer phone calls. It is a model adapted from big tech companies, all of whom abandoned phone support for the masses a long time ago. The net effect here is that technical problem-solving skills may need to move in-house, and small business owners may have to dedicate more resources and training to doing jobs that were previously the responsibility of tax-paid or large corporate support.

Here is something of interest for short-staffed shops trying to hire good people. The online recruitment firm Zippia says that 15 percent more potential employees now want life insurance in their employment package, in the wake of Covid. And Business News Daily notes that more and more employers are now offering childcare and mental health benefits as a means to attract or keep employees.

Zippia also notes that businesses have increased their demand for cyber insurance (protection against hackers) by a whopping 78 percent over the past four years. It is another new cost for woodshop owners, but the online world is less secure for small businesses because of new versions of malware and ransomware.

Beginning with Covid, many consumers changed the way that they shop for large items such as cabinetry and appliances. This was once a physically immersive experience where the customer visited a real showroom and enjoyed the visual and tactile experience of pulling out drawers and watching doors close slowly. Now, a huge number of potential clients rely on an online shopping expedition that is increasingly falling into the domain of virtual reality.

This type of ecommerce can be an important element in marketing for woodshops that are working on growing their customer base, especially in geographical areas with young, tech-savvy populations. Reaching these types of customers also requires a serious presence on social media, and that requirement is growing. Advertising on platforms such as TikTok or X may seem counterintuitive for the cabinet industry, but it is where a lot of potential customers hang out. About 70 million Americans qualify as Gen Y (between 25 and 40 years old), and they are the next wave of custom cabinet shop clients.

Covid also sent a lot of people home to work, instead of commuting to an office. While hands-on businesses such as woodworking offer far fewer opportunities for working from home, the trend does offer some potential for salespeople, managers, bookkeepers, and other support staff. It does not need to be all office or all home, but if there is no need to heat or air condition a suite of rooms, or burn lights, or provide support such as mileage allowances or office cleaning, it may be worth a look as a hybrid cost-cutting option.

Beyond providing the opportunity for online work, the Internet has other, more nefarious aspects. Woodshops can now gather a great deal of information about potential and existing clients, and this can be both a boon and a problem. 5G data is making online experiences faster and smoother than ever, but the processing speed is also making it easier for companies to track and analyze peoples’ behaviors and preferences.

5G can also speed up how a shop’s CAD and CAM software talks to its machinery, which should speed up production in more automated workplaces.

That potential decline next year in housing starts is not as gloomy as it sounds. Despite higher interest rates and labor shortages, America will continue to build new homes and renovate existing ones. Our growing population will always need somewhere to live, and woodshops can turn houses into homes.  

This article was originally published in the October 2023 issue.