Hi everyone! Welcome to the August installment of The Economy Explained, with Gusto!
The job of Gusto’s Research & Data team is to make you smart about the economy to your clients, who we know are asking you questions about what they should do. In this video, we’ll talk about what’s happening in the economy, what that means for businesses, and what to keep an eye on in the coming months. You can also download the The Economy Explained one-pager to share.
We’ve been talking about a ‘soft landing’ for the US economy for several months now – a return to ‘normal’ inflation (2% per year) without a recession. Can it be achieved?
Markets were spooked in early August with a soft jobs report and an uptick in unemployment, and a historically reliable indicator for recession was triggered by the unemployment increase. This fed fears that the US economy was losing the strength it’s held for the last several years, and that the recession we’ve all been afraid of since late 2022 is finally here (or soon coming).
Yet, a broader look at economic data suggests that the US economy remains in a good position. GDP growth in Q2 (April – June) came in at a robust 2.8% annualized, above most observers’ expectations. Current predictions for Q3 (July – September) stand at 2.11% (though there’s a 50% chance that it ends up between 0.94 and 3.69% – a big range of uncertainty).
The unemployment rate continues to tick up, but a 4.3% unemployment rate is still a ‘good’ rate, according to historical standards. And inflation progress continues, meaning that the Federal Reserve has stronger incentives to think about rate cuts in the later part of the year, to balance the risks of inflation and the labor market.
Small and medium-sized businesses (SMBs) have had a tougher ‘go’ of it than the overall economy. It remains difficult to hire, and the availability of qualified workers is a top business concern. The increases in pay have caused many SMBs to raise the standards they look for in a worker, making finding a match possibly more difficult for some, even with an easing labor market. The more businesses see their talent shortage as a long-term issue, the more they will look to changes in their technology, equipment, or business model to do more with fewer headcount. This often requires monetary investments, and businesses have struggled to plan for or get loans in the high-interest rate environment. We expect to see a spurt of investment once interest rates come down as businesses move on investments they’ve been putting off.
The economy remains in a relatively healthy position. Yet, sentiment about the economic outlook does not match the reality of the economic data. It has not for months. While two-thirds of business owners say their business is in good health, only half as many say the US economy is doing well. In the data and anecdotally, we’re seeing many indications that people feel “bad” about the state of the economy – far more than is warranted given the realities of the data. Feelings are not facts, but they do drive decision-making. Business owners that do a good job of distinguishing emotions from data will be positioned to make better-than-average decisions in the future.
Our advice for companies is:
- Make a plan for investment. For businesses facing a chronic talent shortage, whether it is a plan to increase headcount efficiency, or invest in new equipment to increase productivity, plan out how you will increase output with the same or fewer human hours. Working with an accountant or business planner can help identify tax benefits and ways to finance long-term workarounds for persistent talent shortages.
- Bridge feelings and data. Strong emotions reduce the chances for sound decision-making. During these times, advisors are crucial to help business owners separate and interpret the data related to their own business performance as well as the economy at large. Business owners should actively seek to look at data in multiple ways during this time of uncertainty to combat emotional biases that can lead to suboptimal decision-making for their business.
And that’s the Economy Explained with Gusto for August 2024.
Gusto partners can access additional one-pagers in Gusto Pro for 18 industries and 32 metro areas, and find company-specific data using People Analytics to tell the full people-story for their clients.
Thanks and see you all next time!
