Hi everyone! Welcome to the May 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.

Overall, the economy remains in a solid position. The recent GDP release of 1.6% annualized growth was below expectations, but above what is considered to be the economy’s long-run potential. This lower-than-expected number was driven by lower-than-expected exports due to the strong US dollar and some economic softness among major trading partners, in addition to lower government spending. If you’re curious about what goes into GDP, you can listen to our podcast on this very issue. 

The labor market is still tight by historical standards, but the ratio of jobs per unemployed continues to coast downward, easing pressures for businesses that are recruiting. However, many businesses have slowed hiring as a result of economic uncertainty and a decline in workers quitting. We also see a lower-than-expected jobs report in May, suggesting some slowdown. With the exception of seasonal hiring throughout the summer, we expect continued, if slow, easing of the labor market for the next several months. 

Inflation progress has slowed, stalled by the continuing demand for workers which pushes up costs, especially in services, and the high cost of housing. Though it’s likely that progress on inflation will continue this year, progress may be slower due to the difficulty of resolving these two issues through interest rate manipulation. 

Inflation is also affecting consumers, but slightly. The current sentiment of many consumers is exemplified by the experience of Ross Fondren in a recent CNN article

““The [price] increases… do add up. But for now, they’re manageable, Fondren said, noting he and his wife both received “decent raises” recently in addition to paying down debt.”

Consumers are being hurt by continued inflation, but helped by pay raises that enable them to afford their lifestyles. However, growth in pay is slowing, and may not be able to keep up with inflation this year. In three words, consumer demand seems: stable but soft. If the labor market slackens noticeably in the coming months, we could see spending decline, but this isn’t expected as summer hiring picks up. 

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

Our advice for companies is:  

  1. First, refocus on culture and process. Many businesses are not in the market for new hires, and workers have settled in, as well. Focusing on process and efficiency can take precedence over retention and recruitment efforts for many businesses. 
  1. Second, as in our prior release, 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. Small businesses should decide if they can afford to delay major investments until financing conditions are more favorable. 

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

"Want your copy of the one-pager?" Download here

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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