ARTICLE
The Consumer Price Index increased 9.1% in June compared to a year ago, and business owners are battling the repercussions. The popular measure for inflation hasn’t been this high since 1981, according to the Bureau of Labor Statistics. “Over the past two-and-a-half years, small-business owners have faced a once-in-a-century pandemic, once-in-a-generation inflation, unprecedented supply chain disruptions, and historic challenges finding qualified employees,” said Jessica Johnson-Cope, president of Johnson Security Bureau in The Bronx, NY and Goldman Sachs 10,000 Small Businesses Voices National Leadership Council Chair. “Washington has helped us through the worst of it, but it’s clear that more needs to be done.” > Small-business owners have deep concerns about the economy, with 93% worried the United States will experience a recession within the next year. > Hiring challenges have stayed the same or gotten worse, with 84% agreeing. Of those having a hard time hiring, about 97% report the labor shortage has impacted their bottom line. > About 55% of small businesses report that it takes more than two months to fill an open position with a qualified employee. About 78% say competition with larger employers on pay and benefits has made it harder to hire. New data on inflation-adjusted consumer spending during May finally showed a decline (of 0.4 percent) and estimates of 2nd quarter growth of GDP are now running negative. Because GDP fell 1.6% at an annualized rate in the first quarter, two consecutive quarters of negative GDP growth usually has everyone claiming recession. Much of the economic data is not consistent with an economy that is in the midst of a recession. Overall spending by consumers moved lower recently principally because Americans are having trouble buying automobiles and other larger purchases. Not because of demand but because of supply. The weakness in the economy seems to be limited to GDP and it is difficult to declare that the economy is in a recession when: > Our nation’s factories are at a higher rate of capacity utilization than in 2019 and the highest since 2009 > The value of international exports is at an all-time high > The unemployment rate is 3.6% and not moving higher. > The trend in job growth is still strong, and > Consumers continue to spend and businesses continue to invest. Over the course of the last 6 months, it is very apparent to acknowledge that people are frustrated with gasoline prices that have doubled, and grocery bills that have risen 10 to 50 percent, which leads to the notion that the nation is in a recession. Having inflation at 9.1 percent on a year-ago basis, compared with the 2.1 percent average growth in 2018 and 2019, is costing the average household $347 per month to purchase the same basket of goods and services as they did last year. However, the pure cost for households for having inflation running 8.5% is $460 per month. At the same time that costs are rising, household wealth is retreating. All three major U.S. stock market averages continue to sink to their lowest levels of the year, off 16 percent, 21 percent, and 29 percent respectively for the Dow, S&P, and Nasdaq Composite. The collapse in the markets during June indicates that investors are pricing in another 50-point interest rate increase this year, if not two more, which will likely be in September and November following the 50-point hike presumed at the upcoming meeting on July 26. Labor Markets reinforced by the current 1.2 million job openings in the state. To place this figure in context, in the five years prior to the pandemic, a period of economic expansion, there were an average of 686,000 job openings in the state. As is clear to anyone who visits a restaurant or retail store in California or locally in Santa Cruz County, where “now hiring” signs are abundant, the state is currently experiencing an acute labor shortage. The unemployment rate in Santa Cruz County was 3.6 percent in May 2022, down from a revised 4.5 percent in April 2022, and below the year-ago estimate of 7.0 percent. This compares with an unadjusted unemployment rate of 3.4 percent for California and 3.4 percent for the nation during the same period. In summary, the national, state and local economies are in a state of flux with strong indications we are on the edge of a recession. Pandemic induced supply chain issues were one cause of the initial uptick in inflation last year. Add to that rising crude oil prices as U.S. energy policy was changed to limit domestic oil production. Then, add to that the Biden administration’s $1.9 trillion American Rescue Plan spending package in March of 2021 which overheated an economy that was already running hot, and inflation started to surge. The Fed, with easy monetary policy including quantitative easing, continued to accommodate this spending and the subsequent $1.2 trillion infrastructure plan passed by Congress 7 months later. The concern is whether these combined policy decisions caused today’s inflation, higher interest rates and the rocky stock market. We won’t have a clear picture until mid-Q3 or Q4 2022 whether the federal funds in the American Rescue Plan and the infrastructure bill will flow into the state and local communities creating jobs and project development. Fascinating as it may seem, California’s state budget was noted at a historical high of $308 billion and a surplus near $100 billion, an astonishing number. The state’s budget relies heavily on income taxes, and in normal times income taxes account for around 25% of California’s revenues. But in Fiscal Year 2022-23, revenues from income taxes will account for two-thirds of the state’s budget. Incomes have been greatly aided by the performance of the stock market, with the S&P 500 increasing by 27% in 2021, boosting capital gains tax revenues. Increases of such magnitudes typically follow major market contractions. The surge in the market in 2021 was extraordinary because the market started the year, not at lows, but at all-time highs. Still, the state’s temporary budget windfall should be treated with caution. It’s not a signal for the legislature to permanently expand programs that it will not be able to finance as revenues return to normalcy in the coming years. So far in 2022, the S&P 500 is down close to 20%, which will render lower state revenues in the next fiscal year. At the local level, all eyes turn to seasonal activities during our busiest summer months. Some anecdotal reports show a strong tourist economy with hotels and restaurants peaking at capacity even during a labor shortage. Local retail shopping remains below normal according to several businesses. What does this mean during an election cycle — later this month and into August, we will begin discussions about how ballot measures at the state and local level will impact voter turn-out, voting trends or apathy because of the economic conditions we face?
The Consumer Price Index increased 9.1% in June compared to a year ago, and business owners are battling the repercussions. The popular measure for inflation hasn’t been this high since 1981, according to the Bureau of Labor Statistics.
“Over the past two-and-a-half years, small-business owners have faced a once-in-a-century pandemic, once-in-a-generation inflation, unprecedented supply chain disruptions, and historic challenges finding qualified employees,” said Jessica Johnson-Cope, president of Johnson Security Bureau in The Bronx, NY and Goldman Sachs 10,000 Small Businesses Voices National Leadership Council Chair. “Washington has helped us through the worst of it, but it’s clear that more needs to be done.”
New data on inflation-adjusted consumer spending during May finally showed a decline (of 0.4 percent) and estimates of 2nd quarter growth of GDP are now running negative. Because GDP fell 1.6% at an annualized rate in the first quarter, two consecutive quarters of negative GDP growth usually has everyone claiming recession. Much of the economic data is not consistent with an economy that is in the midst of a recession. Overall spending by consumers moved lower recently principally because Americans are having trouble buying automobiles and other larger purchases. Not because of demand but because of supply.
The weakness in the economy seems to be limited to GDP and it is difficult to declare that the economy is in a recession when:
Over the course of the last 6 months, it is very apparent to acknowledge that people are frustrated with gasoline prices that have doubled, and grocery bills that have risen 10 to 50 percent, which leads to the notion that the nation is in a recession.
Having inflation at 9.1 percent on a year-ago basis, compared with the 2.1 percent average growth in 2018 and 2019, is costing the average household $347 per month to purchase the same basket of goods and services as they did last year. However, the pure cost for households for having inflation running 8.5% is $460 per month.
At the same time that costs are rising, household wealth is retreating. All three major U.S. stock market averages continue to sink to their lowest levels of the year, off 16 percent, 21 percent, and 29 percent respectively for the Dow, S&P, and Nasdaq Composite.
The collapse in the markets during June indicates that investors are pricing in another 50-point interest rate increase this year, if not two more, which will likely be in September and November following the 50-point hike presumed at the upcoming meeting on July 26.
Labor Markets reinforced by the current 1.2 million job openings in the state. To place this figure in context, in the five years prior to the pandemic, a period of economic expansion, there were an average of 686,000 job openings in the state. As is clear to anyone who visits a restaurant or retail store in California or locally in Santa Cruz County, where “now hiring” signs are abundant, the state is currently experiencing an acute labor shortage.
The unemployment rate in Santa Cruz County was 3.6 percent in May 2022, down from a revised 4.5 percent in April 2022, and below the year-ago estimate of 7.0 percent. This compares with an unadjusted unemployment rate of 3.4 percent for California and 3.4 percent for the nation during the same period.
In summary, the national, state and local economies are in a state of flux with strong indications we are on the edge of a recession. Pandemic induced supply chain issues were one cause of the initial uptick in inflation last year. Add to that rising crude oil prices as U.S. energy policy was changed to limit domestic oil production. Then, add to that the Biden administration’s $1.9 trillion American Rescue Plan spending package in March of 2021 which overheated an economy that was already running hot, and inflation started to surge. The Fed, with easy monetary policy including quantitative easing, continued to accommodate this spending and the subsequent $1.2 trillion infrastructure plan passed by Congress 7 months later.
The concern is whether these combined policy decisions caused today’s inflation, higher interest rates and the rocky stock market. We won’t have a clear picture until mid-Q3 or Q4 2022 whether the federal funds in the American Rescue Plan and the infrastructure bill will flow into the state and local communities creating jobs and project development.
Fascinating as it may seem, California’s state budget was noted at a historical high of $308 billion and a surplus near $100 billion, an astonishing number. The state’s budget relies heavily on income taxes, and in normal times income taxes account for around 25% of California’s revenues. But in Fiscal Year 2022-23, revenues from income taxes will account for two-thirds of the state’s budget. Incomes have been greatly aided by the performance of the stock market, with the S&P 500 increasing by 27% in 2021, boosting capital gains tax revenues. Increases of such magnitudes typically follow major market contractions. The surge in the market in 2021 was extraordinary because the market started the year, not at lows, but at all-time highs. Still, the state’s temporary budget windfall should be treated with caution. It’s not a signal for the legislature to permanently expand programs that it will not be able to finance as revenues return to normalcy in the coming years. So far in 2022, the S&P 500 is down close to 20%, which will render lower state revenues in the next fiscal year.
At the local level, all eyes turn to seasonal activities during our busiest summer months. Some anecdotal reports show a strong tourist economy with hotels and restaurants peaking at capacity even during a labor shortage. Local retail shopping remains below normal according to several businesses. What does this mean during an election cycle — later this month and into August, we will begin discussions about how ballot measures at the state and local level will impact voter turn-out, voting trends or apathy because of the economic conditions we face?