Hi everyone! Welcome to the August installment of The Economy Explained, with Gusto!

The job of the Gustonomics 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, you’ll get a sense of what is 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.

Key Trends

  • We are in the ‘forever’ talent shortage. Job openings are more drifting sideways then down, although there has been some progress. Retirements and transitions to entrepreneurship and freelancing work have created long-term talent shortage. Though many areas are seeing improvements in talent availability since the beginning of the year, the labor market is going to be a tough one for most businesses to navigate for a long-time. 
  • Financing continues to get more expensive. Most banks are lowering the amount of credit provided, and increasing the requirements for loans and credit. Businesses that need short or long-term financing are going to face higher costs unless they are exceptionally well-qualified. 
  • Consumers are taking a pause. Consumer spending was flat month-on-month, and credit card stress returned to pre-pandemic levels, suggesting that consumers are taking a pause to assess their situation. While they aren’t pulling back, they are becoming more cautious about their spending. 

So, what does that mean for businesses in the coming months? Our advice:

  1. Keep investing in total compensation and retention. Many companies are still at replacement hiring now, not expansion hiring. Ensuring businesses have the right compensation packages to retain talent and keep them committed is a high-return investment. Of special interest for us right now are 401k plans, which have a return on investment of more than 100% for retaining workers. 
  2. Get balance sheets in shape. Maximizing cash flow positivity is going to be key to help businesses avoid going to capital markets for financing. Where businesses can build up some retained earnings to supplement any weak revenue months, this will help businesses avoid unnecessary financing charges while credit remains expensive. 
  3. Meet consumers where they are. Focus on mid-level pricing, extras, or discounts to deliver more value without restoring to steep cuts or reductions in prices. Consumers have been remarkably resilient through the last six months, and we believe they will continue to rely on the good labor market and their savings to smooth their spending. 

In closing, we advise folks to think of the economy like the weather. What the forecast means for you and your business, or your clients’ business, depends on a lot of specific factors. Do you need to go outside while it’s raining? Does your roof have a leak? Do you sell umbrellas? 

That’s all for The Economy Explained for August 2023. 

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! 

Liz Wilke is a Principal Economist at Gusto, researching the state of work and business in the modern economy. She is a veteran of both the technology and government sectors, where she directed research programs and public spending that supports dynamic, resilient companies and workers across the globe. Liz currently lives in Washington, D.C.

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