Hi everyone! Welcome to the November installment of The Economy Explained, with Gusto!
The job of Gusto’s Insights Group 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 is in a good position through the end of the year, with a strong GDP report of 2.8% for the third quarter, a robust jobs report in October and November, and enough progress on inflation that the Fed made a significant cut to the interest rate in September.
On the talent side, workers are becoming more available across the board as supply and demand for workers come more into alignment. Businesses have reported that they have had an easier time finding qualified workers for their open roles, and more applicants in their candidate pools. However, not all places or industries are feeling “loose” yet. Eleven states still have more than two job openings for every unemployed person, and many sectors have multiple job openings for every unemployed person in that industry. Trade and specialized service workers remain in high demand relative to their availability in the labor market.
For SMBs that are looking for workers to fill these roles, consider taking a look at their recruitment strategies. Nearly half of SMBs hire within their family and personal networks. Many do not even advertise widely for their open roles. This may reduce some of the risk of hiring a new person, but it also limits the pool of talented and skilled people that can connect with SMBs’ open roles. Encouraging SMBs looking for these still hard-to-fill roles to advertise more broadly could facilitate a much-needed match.
Moderate pay growth – approximately 4-5% annualized – is likely in the coming months as talent remains tight and economic activity is strong. Businesses will need to invest in the coming year in productivity and efficiency processes to keep up with this healthy rate of pay gains in order to retain and attract workers.
The Federal Reserve cut its interest rate by 50 basis points in September (0.5%), due to some weak jobs growth and substantial progress on inflation. Much of that expected cut was already priced into many loan terms, so consumers and businesses didn’t necessarily feel any immediate impact on financing conditions. Still, as long as inflation continues to decelerate there is good reason to expect interest rates to continue to decline through 2025, and for financing to become more favorable to SMBs. Loan conditions are improving for many small business loan products, but SMBs will benefit from shoring up their books to be more creditworthy and shopping around for favorable terms. Keep an eye on monthly inflation reports for an indication of whether more interest rates will be coming soon.
Business optimism has been increasing steadily over the course of this calendar year, as has business uncertainty. Both measures are near recent highs. This paints an overall picture in which businesses see opportunities for themselves in the immediate term as credit and talent conditions ease without a major decline in demand – but they also don’t know how long they can expect these conditions to hold.
Uncertainty makes decision-making difficult. Advisors can help SMBs by making contingency plans and taking a close look at the financial realities of their business under multiple possible scenarios to increase confidence that SMBs’ plans are robust.
Our advice to companies is:
- Start planning for productivity investments. SMBs can ensure their books are in creditworthy condition and start shopping around for financing terms, which are expected to improve as interest rates continue to drop.
- Change-up recruiting plans for specialized and trade roles. Expand the talent pool for hard-to-fill roles by advertising on job or industry websites. SMBs can mitigate the risk of hiring a stranger by being clear about requirements of the role, and using structured interviews to assess candidates in a systematic way.
- Scenario planning. The economy is strong, but uncertainty reduces confidence to act. Mapping out multiple possible scenarios for the business can help SMB owners feel more confident and in control no matter what economic situation materializes in the next year. This can make it easier to execute investments or other plans with confidence.
That’s the Economy Explained with Gusto for November 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!
