Fed Talks Inflation and Uncertainty, Job Growth Moderate, OT Rule Appealed

Hey everybody, it's Gene Marks, and welcome to this week's episode of the Paychex THRIVE Week in Review. This is where we take a few items for the news during the week and we talk a little bit about them because they impact your small business and mine.

This week we're going to talk about the economy. We're going to talk about the labor markets. We're also going to talk about a change to the overtime rule which kind of surprised a lot of watchers of the Trump administration. But let's get to the economy first.

A great source to go to the economy, of course, is the Federal Reserve, and last week, Jerome Powell gave a speech to the Federal Reserve about the economic outlook of the country. Let me just read you some of the highlights from his speech.

The Fed chairman says that “The economy has been growing at a solid pace. GDP expanded at 2.3 percent annual rate in the fourth quarter of last year.” He also said “recent indications point to a possible moderation in consumer spending relative to the rapid growth rate. However, recent surveys of households and businesses point to heightened uncertainty about the economic outlook.”

He says it remains to be seen how these developments might affect future spending and investment, and according to Chairman Powell, sentiment readings have not been a good predictor of consumption growth in the future.

When it comes to inflation, he believes that the Fed will be on track to its 2% target goal. And looking ahead, Chairman Powell said last week that the new administration is in the process of implementing significant policy changes in four distinct areas: trade, immigration, fiscal policy, and regulation. The net effect of these policy changes will matter for the economy and the path of monetary policy.

While there have been recent developments in some of these areas, he said, especially trade policy, uncertainty around the changes and their likely effects remains high.

So, according to Fed Chairman Powell, the economy is still stable and on track and growing, but a lot of policy changes that are being implemented by the new administration is causing some uncertainty. So, the Fed is keeping a close eye on that.

Let's turn to labor and employment. Paychex released their most recent Small Business Employment Watch with the headline that “U.S. small business employment remained stable in February.” According to the Paycheck Small Business Employment Watch, the rate of growth was moderate job growth. Hourly earnings growth for small businesses remained below 3% at 2.92% for the fourth straight month.

John Gibson, the CEO of Paychex, weighed in. He said, “Our employment data continues to show moderate job growth and wage growth below 3%.” He said, “The consistent long-term trend we're seeing is a small business labor market that is resilient and stable with little job movement among workers.”

Now, after that announcement was made, new announcements were made from the Department of Labor that showed that layoffs across the United States had spiked in February, reaching their highest levels since July of 2020. Those layoffs were led by widespread firings of government workers ordered by the Department of Government Efficiency, this is according to an outplacement firm called Challenger, Gray, and Christmas.

Challenger Gray and Christmas said that employers cut more than 172,000 jobs last month, a 245% increase from January and double the number that was announced during the same month a year ago.

So, even though small business employment remains stable, wage growth is below 3%, according to Paychex, government layoffs that are being done by the Department of Government Efficiency are having their effect on the labor market and that effect remains to be seen.

The final bit of news this week also comes from Washington via Texas, has to do with the overtime rule. Now, if you remember, President Biden had issued new overtime rules that were taking effect in 2024 that would increase the level of pay that most employers would have to consider when paying their overtime to certain workers in their businesses.

Now, that rule was challenged in the courts and most people were expecting the Trump administration not to appeal those challenges and just let the rule go back to its 2019 levels. But in a surprise move, the Trump administration did appeal those challenges in the Texas court. I'll explain to you why in a minute but let me first read you the news.

The Trump administration last week moved to revive a Biden-era Department of Labor regulation that would have extended mandatory overtime pay to four million salaried workers but had been struck down by judges. The Labor Department in the current administration filed a notice of appeal in Lubbock, Texas, federal court that said the rule improperly based eligibility for overtime pay on workers' salary rather than their job duties. The case was brought by a small marketing firm.

Now, why did that happen? Why did this administration, which obviously as opposed to many of the prior administration's rules, issue this appeal in the court? Well, here's the reason why. Many people feel that the Department of Labor under this current administration is trying to defend its ability to set a salaried threshold for overtime eligibility, which has done since the 1930s through Republican and Democratic administrations.

Now, if they win this appeal, even though they would have accomplished one thing by saying in the court system the Department of Labor does have the authority to do this very thing, most people expect, however, the Trump administration, once they have that authority, to turn around and revisit those overtime roles and probably set them back to 2019 levels.

So, what does that mean for you as a business? Not much right now. I personally am expecting that overtime wages will go back to the 2019 levels. The Trump administration appeal right now is really just to set the standard to make sure they establish in the courts the authority of the Labor Department. And once that authority has been indicated, they're going to go back and most likely move back the overtime wage to 2019, but we will see.

You have been watching or listening to the Paychex Thrive Week in Review. My name is Gene Marks. Thank you so much for joining us. If you need any help or tips or advice in running your business, sign up for our Paychex THRIVE newsletter. Go to paychex.com/thrive.

We'll see you next week with some more news and information that will help you run your business. Take care.

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I'm your host, Gene Marks, and thanks for joining us.

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