The COVID-19 pandemic halted businesses worldwide, wreaking financial havoc and causing the worst economic crisis since the Great Depression in the 1930s.
As one of the pandemic after-effects, inflation is now high, and another recession in 2022 may be forthcoming.
So what does this mean for the design industry?
Is it a threat?
An event that will pass quickly?
The answer is complicated.
In reality, many factors can influence the design industry, so it’s difficult to pinpoint the exact effect.
However, to stay-in-the know about this year’s looming recession, we’ve outlined the most important things to look out for.
But first, is a Recession Actually on the Horizon?
Bloomberg Economics predicts the US economy may experience a mild recession by 2022 due to the Federal Reserve hiking interest rates.
These rates will continue to increase into 2023, but at a slightly lower terminal rate of 3.50-3.75% (reached in February) compared to March’s initial prediction of 3.75-4.00%.
The Washington Post agrees, advising that recession calls are becoming more evident on Wall Street– a concern shared by several small business owners and consumers. And clearly illustrated by the Misery Indexes, which blend inflation rates and unemployment.
According to the Misery Indexes, the US is already at 12.2%, a level very close to what was witnessed at the start of the pandemic (and in the wake of the 2008 financial crisis).
The impact of a recession is already being felt by some business owners, who have experienced substantial profit loss and believe a recession is not on the horizon but has already begun.
How is the Recession Impacting Everyday Consumers?
Worldwide, food, fuel, and other essentials are becoming more expensive.
In turn, this erodes the spending power of families.
With an inflation surge like this, central banks are responding by bumping up interest rates, a decision that will heavily hurt those consumers with debts.
Plus, the war with Ukraine, supply-chain shortages and shutdowns in China (due to their zero-COVID policy) are further slowing down economic recovery from COVID-19.
According to OECD, the Global GDP is now projected to slow sharply this year (at about 3%), remaining at a similar pace in 2023.
We’ve also officially reached the $5 milestone as gas prices have hit an all-time national high.
Now, prices for basic commodities are heightened. And workers’ wages aren’t increasing, i.e., consumers can’t keep up with the cost of living.
And, what about economic growth? Not just in 2022, but 2023?
Stagflation may also occur, an economic event that arises due to persistently high inflation in combination with high unemployment rates and slow economic growth.
Where does the design industry stand amongst this financial chaos?
Depending on your sector, you may not be viewed as a commodity, but strictly a luxury.
Which Design Sectors Will be Impacted?
According to ASID 2022 Economic Outlook, inflation is top-of-mind for both consumers and businesses. However, to combat inflation and supply chain shortages, the Federal Reserve’s increase in interest rates in 2022 and 2023 may slow down demand for construction projects.
Plus, the pandemic did disrupt trade on multiple fronts.
ASID recommends that designers emphasize sustainable and energy-saving design practices to mitigate future trade interruptions (while staying in constant communication with suppliers and clients).
Overall, the interior design industry shows a positive recovery and growth rate. For example, the interior design profession has fully recovered all jobs lost due to the recession in 2020 and COVID-19. And, both national employment (and construction industry employment) have bounced back from the early 2020’s decline. Still, both remain below pre-pandemic levels.
In 2021, however, total construction spending rose, especially residential construction in single-family and multifamily housing sectors. The hospitality, educational, and office sectors, however, declined.
Non-residential construction slowed down in 2021 from labor shortages and supply chain issues, but healthcare construction reached a record high in 2020 and 2021.
While the entertainment, travel, office, education, and hospitality industries will take more time to recover.
Therefore, depending on your specialization, you may face different challenges than other designers in other specialties.
Keep in mind hybrid working arrangements and new ways of defining work schedules (versus strict 9-5 office lives) will also impact what home means to many. People may now stay home more frequently due to the availability of remote work —a factor that may motivate them to spend more on improving their homes.
ASID summarizes regardless of what’s in financial store for design professionals, designers will play a key role in determining the direction of future office construction spending.
What Else Should I Know About the Upcoming Recession?
According to the Business of Home, and the Consumer Price Index, it’s clear how extreme inflation has become. Recent reports indicate that prices have increased by 7% since the same period last year – this is the biggest jump in almost 40 years!
And the price of furniture and bedding has gone up by 13.8%, with living room furniture alone hiking to 17.3 %.
No doubt, inflation will determine the economy as we approach 2022, but how it affects the design industry may be more complex and harder to predict.
Here’s What to Stay on Top of in the Meantime
According to Business of Home, there are a few key concepts to stay on top of as we look ahead to 2022, including:
- The cost of home decor, furniture, and building supplies will not decline anytime soon.
- Shipping surcharges will continue to go up due to global shipping kinks that may not be worked on this year (however, for domestic and small-scale makers, local workshops may be able to keep their prices steady).
- Some extreme price hikes like gasoline may recede.
- Taking out loans will become harder, whether for continued education or growing a business (which means interest rates will go up and lending terms will get more restrictive).
- Buying a home will get more expensive, so clients may be buying new homes but not have enough of a budget left over to design them.
- Interest rates will make for less favorable mortgage rates – and housing prices will increase because materials like wood and steel are more expensive due to supply chain crises.
- Affluent communities will be less impacted – so if you’re a design professional who caters to high-end luxury clients, you may call the industry slightly recession-proof.
Still, inflation is the number one economic fear amongst millionaires, according to CNBC Millionaire Survey. Everyone is affected – though how this effect plays out for individuals, whether that be the cost of groceries or the cost of borrowing and increased pressure on asset values differs.
What Can Design Professionals Do?
Today’s financial crisis is still developing, and even though it’s not totally clear how this slump will play out, there are things you can do to protect yourself and your business.
- Prepare in advance: Take preparatory action– know what your overhead is and what you need to meet your bottom line.
- Know your potential work projections (to understand the impact of losing several clients during a recession).
- Try to stay debt-free as much as possible. An open credit line can add to your financial stress.
- Reduce expenses in the long run by downsizing. You may be able to save money by working from home or downsizing your current office.
- Optimize your workflow. Time is money too! Use interior design software like Gather to streamline your daily tasks, communicate with team members, and stay on top of client deadlines. Learn More about Gather’s Features Here and start a Free Trial to see how Gather can help you (and your team) become more efficient.
For additional resources, check out these related articles:
8 Interior Design Certifications That Will Level Up Your Career
How to Incorporate Sustainability into Interior Design & Architecture
Shivani is an expert writer for Gather who covers interior design, decorating, and home improvement. She has worked as a residential interior designer for 4+ years and has extensive training in space planning, 3D renderings, 2D floorplans, whole room furnishing and décor, and color consulting. She is passionate about educating communities on industry topics and has been featured in Better Homes & Gardens, The Spruce, My Domaine, Domino, Martha Stewart, and Atlanta Magazine. Currently, she is also completing her residential interior design certificate from Rhode Island School of Design’s continuing education program.