Hi everyone! Welcome to the May 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, 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.

Y’all, a lot has happened in the economy since our last release in February. The number of job openings finally dropped below 10 million in March. And the Fed kept up its interest rate hikes, which seem to have made progress on inflation. And, you know, there was a small banking crisis. 

Despite all that activity, the overall story is an extension of last time’s, which is: a strong economy is finally slowing down a bit. And, that’s a good thing. We can’t keep spending $20 on a hamburger, and $250 a night at hotels.

Because of the recent financial turmoil, there’s a bit more risk to the downside, away from that soft landing scenario. At this time, most observers, including us at Gusto, are expecting the economy to continue slowing at a gradual pace through the end of the year, entering a light and short-lived recession towards the end of the year, before rebounding in 2024. 

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

Our advice for companies remains unchanged since last time. It’s: 

  1. First, build the team they’ve hired. Many companies are at replacement hiring now, not expansion hiring. With a continued talent shortage, investing in new employees and building a strong workplace culture will be crucial for keeping them engaged and productive in their jobs long-term.
  2. Second, to get around the continued talent shortage, keep searching for ways to become more agile by looking at contractors, part-time or remote talent, younger workers, and older workers – both at home and abroad. 
  3. Third, in terms of financial management, businesses should focus on building working capital to manage cash flow fluctuations without turning to borrowing, if possible. Interest rate hikes have made borrowing more expensive. And, take the time before the full slowdown to find cost efficiencies, increase retained earnings, and/or claim tax credits to reduce tax liabilities. 
  4. And finally, building on that third point, small businesses should decide if they can afford to delay major investments until financing conditions are more favorable. 

A slowing economy is the thing most economists want at this point, and it appears that’s what we’re getting, albeit gradually. It’s a move towards some normalcy, and some predictability! We’re cautiously optimistic that this slowdown will continue to be steady and gradual.  

As I keep saying, these are unprecedented times and anything could happen. However, based on the current data, the advice for businesses is the same as last time – to maintain stability, build reserves and consider delaying major investment expenses if possible. Focus talent management efforts towards building a positive company culture, employee engagement, and retention, and look for those new worker types that can ease talent scarce-ness. These are going to help build that high-performing, engaged culture that businesses need to be flexible and adaptive as the economy continues to slow. 

And that’s the Economy Explained with Gusto for May 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.
Back to top