Moody’s Small Business Economic Outlook with Ryan Sweet

January 19, 2022 by Gary Stockton

Small Business Matters Podcast

There is so much going on in the economy these days, so much for small businesses to deal with. We’re in the throes of another significant variant of the virus; supply chain issues continue amid rising inflation. And if that were not enough, employers are having a hard time finding employees because many are either staying home, taking care of their kids, or finding new roles in different industries altogether. It’s a lot for small businesses to deal with.

So to help put it all into perspective, our good friend, Ryan Sweet, is joining us today to offer his take and an economic outlook for the new year. Now, if you’re not familiar, Ryan’s a Senior Director at Moody’s Analytics, a leading provider of economic research. He regularly contributes to the Economic View, Moody’s Inside Economics podcast, and as a member of the US macroeconomics team in Westchester, Pennsylvania. His areas of specialization include the US economy, monetary policy, capital markets, and forecasting high-frequency economic indicators.

[Gary] Ryan, welcome to the Small Business Matters podcast.

[Ryan]: Hey Gary, thanks for having me.

[Gary]: To kick things off, the economy is doing well, but it doesn’t feel that way. Why doesn’t it feel like it’s doing well?

[Ryan]: Well, I think there are a few things behind that. I mean, I still think the economy’s near-term prospects are tethered with the pandemic. Every time we go through a various wave of COVID cases, it weighs on business sentiment, investor sentiment, and consumers. Consumers don’t feel great when they see case counts surging across the country. But, as you pointed out, the economy is doing really well. The job market is tightening. We have GDP growth that’s among the fastest since the early 1980s. One reason why it may not feel as good is that it’s because of inflation. So that’s cutting into people’s household purchasing power and, you know, inflation is not popular. So I think that’s what’s kind of muddying the picture of how the economy is really doing versus how people feel about it.

[Gary]: So what do you think is driving up inflation?

[Ryan]: It’s temporary, so the good news is the worst of the inflation has likely passed. So we should see inflation moderate. And, there’s a couple of reasons behind that. First, what drove inflation higher was the supply chain disruptions. You know, I think the issues with supply chain is both supply and just having enough containers, having workers at docks to unload these containers, but it’s also demand. So consumer spending on goods, just stuff that we buy. It went through the roof over the last year and that put a lot of pressure, a lot of additional strain on supply chains. Inventories are really low. I mean, anyone’s who has gone to a used or new car lot recently. There’s not a lot of cars on the dealership lots, and that’s what is pushing inflation higher. It’s a lot of goods prices. So if you look at, the primary source of inflationary pressures recently, it’s new and used cars, and that’s a supply and demand issue. And the good news is, going forward, these supply chain issues should start to resolve themselves and you could see inflation begin to moderate. The other big source of inflation has been higher energy prices. So, year over year, the CPI was up, the consumer price index was up 7% in December. If you strip out supply chain issues, and energy, it was up closer to 3%. So our inflation problems are hopefully going to be temporary.

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[Gary]: Yeah, so you’re feeling relatively optimistic about things? It’s not all doom and gloom?

[Ryan]: Yeah. I don’t see a lot of reasons for doom and gloom. I mean, with each passing wave of COVID, the economic costs are going to diminish, and that’s attributed to rising vaccinations, boosters, hopefully children 0 to 5 can be vaccinated soon. And that would be really, really important for the labor supply problems that we’re experiencing because, hopefully parents can get back to work, schools don’t have to shut down as frequently or go to virtual learning. But I think the economy’s near-term prospects are really good. I mean, we’re going to have an unemployment rate below 4% by the middle of this year. So if you look back at past recoveries, this one’s sort of like on steroids. This is a very, very strong and robust economic recovery. It’s just, part of the reason is the nature of the recession. It was caused by a pandemic. We locked down, shut down an economy for several months. and as we are reopening, we’re just booming. And I think the economy is going to do really well this year. Things begin to slow in 2023. but for now everything’s goingo to feel much better, going forward.

[Gary]: So, just about every store window I go down and look at on Main street has “Help Wanted [signs].” What’s going on in the labor markets, particularly in retail and restaurants and those types of businesses?

[Ryan]: There’s a lot going on in the labor market. I think the biggest hurdle that small, medium and large businesses–everyone’s feeling the pain of labor supply problems. And there’s a few reasons why. The prime age employment to population ratio, which is those 25 to 54 year olds, is low. I mean, it’s rising, but we’re still below where it was pre pandemic. People just haven’t come back into the labor force and there’s a number of reasons behind that. And again, it gets back to the pandemic. people were worried about, you know, going back to work, contracting COVID, bringing it home, getting loved ones sick. And that’s particularly true for those that have multi-generational households, which the number of has increased steadily over the last couple of decades.

The other thing is daycare, childcare issues. So unfortunately, that burden fell very heavily on women. So if you look at, women’s participation in the labor force, among those that have young children, it has barely recovered since the pandemic. So hopefully once we get on the other side of the pandemic, they’ll be able to come back in, in large numbers and that should ease some of these labor supply problems. The other thing is, I think there’s a lot of job switching. there’s a lot of churn in the labor market, you know, people that were in retail or restaurants, some of them are considering new careers. Those two industries got crushed by the pandemic, and people are wondering, you know, is this for me? Or maybe I should look for a job elsewhere? Different industry?

[Gary]: I’m hearing that a lot. I’m hearing about folks that have had that epiphany. it’s almost like they’ve—I mean, these are hard jobs to do, right? You’re on your feet all day. if you’re a manager running a restaurant, you’re dealing with a lot of stress, a lot of issues and people, and I think a lot of them kind of hit a wall. And I think we saw that in the business starts numbers where there was a sharp growth in business creation and people had downtime and they were starting a lot of home-based businesses. Would you say that that was behind some of those numbers?

[Ryan]: Yeah, I think so. You know, something that we didn’t discuss is, people are referring to as the “Great Resignation.” A lot of quits, but also, you know, retirements–early retirements have increased; people are seeing their nest eggs increase because the stock market hit new highs, which seems like day in and day out. House prices are steadily rising in the U.S. House price growth last year was very, very strong, and should continue to rise. So I think people are opting to retire a little bit early. But again, that’s why I always focus on prime age workers. That’s 25 to 54. they need to get engaged in the labor market and they are, so I think that’s a favorable development going forward, that we should see more labor, supply. But getting back to restaurants, I think the pandemic isn’t over, and with each wave, I think it just takes a further toll on restaurants. You can see spending at restaurants drop during the Delta wave, it’s dropped during the Omicron wave. That creates a lot of uncertainty and income issues for those that are in the restaurant business. So I think, like to your point, it’s a very difficult job to do, and they’d be maybe looking to, you know, change careers.

[Gary]: Yes, we saw a lot of innovation though in the restaurant space, fast innovation, curbside pickup, tented areas. I saw an amazing array of patio areas, outdoor dining, and really, we’ve seen that continue somewhat. I mean, the tents kind of went away after Delta, and I saw a few popping up again. It seems like, in the small business space particularly, small business owners are doing what they need to do to make ends meet, and it seems like this period in time has just been a real tester for how innovative you can be to keep your business running.

[Ryan]: Yeah. I think these are all great points. And I think this is one reason why it should be very optimistic about the economy that small businesses, they adapt. You throw a challenge at them, they’ll figure out a solution. Using the outdoor dining, for example, or curbside pickup. In downtown Westchester where our office is located, they shut down the street during the summer months, just so people could sit outside and help the restaurants out.

I think innovation has increased. I think the entrepreneurial spirit has hopefully been rekindled because of the pandemic. I think if you look at new business formations, they’re up, I think a lot of people are smarter starting their own businesses. some people are retired; maybe they weren’t ready to completely shut it off. So they’re starting their own small business. The data I look at is weekly employment identification numbers, and that was very, very strong throughout last year. And it’s been strong so far this year. And I think that bodes well for business formations, innovation, productivity growth, and these are all things that will help the economy and small businesses and individuals, not just this year, but longer-term as well.

[Gary]: So, Chairman Powell had said that there will be some interest rate increases this year. I think there’s going to be three. What should small businesses be doing to anticipate or get ahead of the curve on that? Is it time to get financing that they needed a lower interest rate? Or what would you say to a small business that’s looking at the prospect of higher interest rates?

[Ryan]: Yeah, unfortunately, interest rates are gonna go up, and they’re likely going to go up pretty quickly because I think the Fed has recognized that their inflation problems are lasting a little bit longer than they had hoped. And also, the economy is doing well; it doesn’t need this extraordinary monetary policy accommodation. So it’s kind of time for the Fed to take their foot off the accelerator. And hopefully they gradually apply the brake and slow things down. Businesses that have variable loans, I think you’re going to see a rush to refi because interest rates are historically low. So, we’re likely not going to see these interest rates until the next recession and hopefully that’s years away!

So the only place interest rates have to go is up. I think what’s important is not just necessarily the level of interest rates, because we’re coming off a very low rates right now, it’s the speed that they increase. And that could undermine business investment; could undermine financial market conditions. One area that I’m concerned about is a policy error by the Fed. You know, there’s that saying that recessions or expansions don’t die of old age, something kills them. And usually it’s the Fed, and if they go barreling into this and try to raise interest rates very, very quickly and reduce the size of their balance sheet, I think that could really undermine the economy.

[Gary]: So, so from an economist’s standpoint, are there any sectors that give you concern and are there any sectors that excite you right now?

[Ryan]: Well, there’s plenty to be excited about in the economy. And you look at the housing market, for example; I think the prospects there, the outlook there is favorable. I mean, we’re not building enough homes. So I think construction is going to do really well over the next couple of years. Now, of course there are some labor supply issues; construction costs have gone up, but those pressures should start to ease over the next 12, 18 months. But I think the biggest hurdle for the housing market is not a demand issue. I mean, demand for new homes, existing homes is, is a very, very strong, and that’s partly attributed to the improving job market, but also very low mortgage rates. the issue is finding buildable lots. and that’s going to be kind of a constraint, maybe that limits how many homes we can build, but I think, you know, housing is, is one area to be excited about. I think the other thing is, innovation and, you know, we talked about with businesses, adapting, I think productivity growth in the U S so, you know, how productive, how many widgets in an hour we can make, is going to be much stronger than it was pre pandemic. And when productivity goes up that that improves people’s living standards. So I think that’s another area that, you know, it got, it was very, very weak after the last recession. I think this time around it’s going to be much, much different.

[Gary]: Fantastic. Any closing thoughts, Ryan?

[Ryan]: Hang in there with inflation. It’s top of mind; a lot of our clients are asking us when’s inflation going to moderate; it’s coming. It may not slow as quickly as we had previously hoped, but I think as these supply chain issues begin to ease as the pandemic hopefully winds down, the underlying fundamentals and the long-term drivers of inflation haven’t changed. We have an aging population that’s disinflationary, and the rate at which money is changing hands is very low. So I think we’re just going through a temporary period of high inflation, which is new for many people. I mean, I’ve been a professional economist for 16 years, and I’ve never seen inflation until last year. So hang in there on the inflation front, and cross your fingers that the Fed can kind of land the plane perfectly on the tarmac. It’s going to be bumpy over the next few years, but don’t count the Fed out. They may be able to pull this landing off perfectly.

[Gary]: Yeah. It might be in the Hudson though. Right. We may need Sully for this one.

[Ryan]: I’m going to use it. That’s a great one. I might have to use that. I’m going to steal that from you. Okay.

[Gary]: You got it.

[Ryan]: Hopefully we don’t go down that road. Hopefully we don’t have the plane in the Hudson, but you know, it’s going to be a bumpy, bumpy landing.

[Gary]: Yeah, Okay. Well, this has been very enlightening my friend, I’m feeling a little better about the situation given the insights you just shared. How can people learn more about you and Moody’s Analytics Economic Insights?

[Ryan]: So anytime you start to panic and you get worried, call me, I’m here, I’ll talk you off the cliff. at least for the next couple of years, things are going to be fine. With Moody’s, I would suggest, or kind of pitch our Inside Economics podcast. You need to come on. It’s with me, Cris DeRitis, who’s our deputy chief economist, and Mark Zandi, our Chief Economist and it’s a weekly podcast. And we talk everything about the economy and how our views are changing from, from week to week.

[Gary]: That’s awesome. Yeah, I’ve been listening and it’s a really super awesome vibe that you have going there on that podcast. So, yeah, I would love to have Experian on there. So thanks for taking time out and thanks for talking me down off the ledge there.

[Ryan]: Yeah, yeah, no, thank you very much for having me. I always enjoy our conversations.

[Gary]: Alright Ryan thanks so much.

Experian Employees Celebrate & Remember Dr. Martin Luther King, Jr.

Celebrate & Remember Dr. Martin Luther King, Jr.

We celebrated Martin Luther King day this week at Experian. For our Inclusion-Forward segment, we asked Experian team members what inspires and motivates them the most about Dr. King, and how they carry that in life and work.

Gary, Senior Manager, Business Information Services, says the thing that inspires him the most about Dr. Martin Luther King, Jr. was his message about nonviolent resistance, and how it can bring about social change.

Corliss, Senior Manager, Financial Inclusion, DEI Marketing said his work taught her to never to give up hope in the face of despair.

Bryan, Social Media Specialist, said King’s iconic “I have a Dream” speech has been a huge inspiration for him, it taught him if you believe in something, to stand up for it.

Emily from Business Information Services said she wants to make it her personal responsibility to ensure King Junior’s dream is not buried, and that she will practice ‘dangerous unselfishness.

Taneishia, Account Executive, Software Sales, says that hearing Dr. King’s “I Have a Dream” speech as a child encouraged her to dream, to hope, and to believe in something bigger than herself.

Jennifer, Senior Manager, Marketing spoke of having faith and taking the first step, even when you can’t see the entire staircase.

You can watch the individual videos each team member made on this post.

Got a story about Diversity, Equity, and Inclusion? Email us at smbmatters@experian.com.

Listen to the full episode on any of these platforms:

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