Consumer Sentiment Down, Credit Access Could Tighten, and Job Openings

[Gene Marks, host]

Hey, everybody, it’s Gene Marks and welcome to another episode of the Paychex Week in Review podcast, where we take a few bits of news during the past week and we talk about how it affects you. So, let's get it going.

The first bit of news comes from the University of Michigan, of all places. The University of Michigan every month puts out it's a widely read survey of consumers, consumer sentiment. And this month's consumer survey was not that great. Consumer sentiment fell 2.5 index points or 4% from October, according to the University of Michigan. It's the fourth consecutive month of declines, and although it reflects a balance of factors, some which have improved, which is good, but mostly long-run business conditions, according to consumers, plunged by 15%. Younger and middle-aged consumers, they exhibited strong declines in economic attitudes this month, while sentiments of those age 55 and older actually improved a little bit from October.

What concerns me the most is that year-ahead inflation expectations rose to 4.5% this month. Remember, actual inflation is about 3 to 4%, and that number went up 4.2%. These expectations have risen despite the fact that consumers have taken note of the continuing slowdown in inflation. Consumers appear worried that the softening of inflation could reverse in the months in the years ahead.

Guys, I am telling you, I don't care what kind of business you're in. I don't care if you're B2C or B2B or whatever. In the end, it's all about the consumer. When the consumers stop buying that is a problem for the U.S. economy. The consumers have been propping up gross domestic product this last quarter, which is great news, but will it continue?

Holiday sales are expected to continue to be strong, which is good. Wages remain pretty strong, and inflation is being tapered. But when I see things like the University of Michigan's consumer sentiment survey declining four months in a row, that is a concerning point for me for consumer expectations as we head into 2024. So, keep a close eye on that.

Next is news from Fox Business, reporting on a survey that Goldman Sachs issued just recently. Besides the results of the survey, Goldman Sachs took particular issue with a recent Federal Reserve rulemaking proposal, the so-called Basel III Endgame Rule, which it argued would include new requirements for banks to increase capital reserves, thus threatening borrowers’ ability to access credit and increasing the cost of remaining lender capital.

With interest rates at a two decades’ high, the Basel proposal, according to Goldman Sachs, would make a difficult situation – a credit environment – even worse, increasing the cost of capital and making access to credit even harder. If implemented, small businesses in underserved communities would disproportionately suffer the consequences from being outright unable to access capital and being forced to pay higher, unaffordable interest rates.

Now, this Basel Endgame rule has not been approved yet, and there are some senators and congressmen looking to legislate some restrictions on this to help small businesses. But if you're running a business, be very much aware that despite there being such high interest rates right now and despite there being a credit tightening both of credit cards and available loan for small businesses, that situation could get even worse if the Federal Reserve increases its capital requirements on banks, which basically provides less capital for the banks to lend out.

And you know, if they are lending money, the big guys are going to get it first before the small guys, and that is a concern.

Talk to your bankers, shore up your financial statements, make sure you've got solid lines of credit and equipment loans available for you as you head into the year. Make sure you get those commitments and firm it all up because credit containment could be happening and that could impact your business.

Finally, there is a report in the Wall Street Journal about jobs. As it turns out, small businesses are the ones with the most job openings, not necessarily large businesses. So, it is, just so you know, that is something that is happening across the board.

So, what do I mean by that? Well, America's tiniest employers have the highest share of job openings on record. There is solid demand for workers from small establishments such as mom-and-pop businesses and many franchised locations. That stands in contrast to a cooling labor market. It could give small businesses a chance to catch up on hiring, with less competition from larger companies on pay and benefits, and offer refuge for job seekers as the unemployment rate creeps higher.

You want some numbers? Okay. Establishments with 1 to 9 employees accounted for 21% of all job openings in September. That is the highest share on record dating back to 2000, according to the Labor Department. Opening at the country's smallest private establishment rose nearly 20% in September from a year earlier, while falling for larger companies over the same period.

So, here's the bottom line: Larger companies are looking less for workers right now than smaller companies, which means smaller companies could be more attractive to workers, which means you could have the opportunity to hire workers more to fill those critical unfilled positions.

So, what do you do about that? Well, just remember, it's not always all about pay. It's not always having the best benefits or the best compensation. Yeah, you got to make sure that you're in the ballpark, that you're competitive to a certain extent. But remember, the biggest strength that you have as a small-business owner is that you can offer flexibility. You can offer meaning. You could offer access to the boss to that potential new employee. People like to go to work in a good workplace.

So, hopefully you've got other good employees there that make the day fun because you're spending 8 to 10 hours at the job. And in addition, people like to feel like they're doing something of value, of substantial, that they're giving something back. If they're working for a small business, they can see the fruits of their efforts as opposed to just being a cog in a large corporation.

You've got all of that going for you. That's what you should be selling. And let me tell you, there are now more people out there looking for jobs and most of the small business owners that I know, they're the ones where those good employees are going to go, too, considering that larger corporations are scaling back.

That's the news for this week. You've been listening to the Paychex Week in Review podcast, and my name is Gene Marks. If you've got any tips or advice or would like to suggest a guest for our podcast, please visit us at payx.me/thrivetopics.

I will be back with you next week with a few more items in the news that impacts your business and some thoughts on how to navigate them. See you then.

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