Are we in a recession? Because if we are, it’s a very strange one.
Sure, we’ve had two quarters of negative economic growth. Manufacturing demand is shrinking. Construction and housing market activity has slowed. Tech companies are contracting. Financial services and real estate firms are laying people off. Inflation and energy costs remain stubbornly high, interest rates are rising and the stock market is off 18% from the beginning of the year. Just Google “recession” and you’ll find that the housing market is in one, major banks and investors are warning of one and Europe is heading for one. Over 80 financial advisers say a recession “is coming” and one bigwig investor believes that it’s going to be a “whopper”.
But hold on for a moment.
Maybe we’re in a recession. Or maybe it’s coming. But when there are recessions – or even the strong prospect of one – companies lay people off. That’s not happening, is it? Hiring has continued to rise. The unemployment rate remains at historically low levels. Job openings are close to an all-time high. And here’s the real shock: the majority of small businesses in the United States – who employ more than half of the nation’s workforce – are not only looking to hire, but are struggling to find employees, according to recent survey responses released by the National Federation of Independent Businesses and employment data from the HR firm Paychex.
“Small business are still not showing strong recession signals,” Paychex’s CEO told CNBC last week.
So why are businesses – particularly small businesses – looking for workers, instead of laying them off?
First off, it’s getting harder and harder to generalize about the United States’ economy. There are 350 million people and 30m small businesses in this country. Our economy is still 60% larger than China’s and bigger than Japan, Germany, the UK, France and Italy combined. California’s economy is larger than India’s. New York’s economy is bigger than Canada’s.
You can’t just say “we’re in a recession”.
At any time in the US, some industries and regions are doing better than others. Construction, financial services and manufacturing are struggling. So is the energy industry. But given job gains since the pandemic, business services, retail, transportation and warehousing are rocking it. The leisure and hospitality industry has lost the most jobs of any industry since the pandemic but appears to be clawing its way back. Alaska, New Mexico, New York and Pennsylvania, for example, had unemployment rates higher than the national average, while states like Minnesota, Florida and North Dakota registered very low unemployment rates. A town where its largest employer is struggling will struggle along with it. But the opposite is also true.
So is the United States in a “recession”? Judging from above, the answer depends on who you ask.
The other reason why most small businesses are looking to hire is because most small business owners are not stupid. The Democrats will tell us that there have been historic job gains the past two years but we know that’s because the bar was set at zero because of the pandemic. Republicans will warn of recessions and high inflation but we know that these things are being caused by a myriad of factors – European wars, Asian supply chains and fiscal and monetary policies right here in the US – and that these factors will eventually resolve themselves, although maybe not as fast or as far as we would like. We are not duped by politicians or rhetoric. We are living this reality every day. And our reality is that – for most – demand remains relatively strong.
And if there’s one thing I’ve learned, it is that my smartest clients, those business owners who have been doing what they do for decades, even generations, are always looking ahead. They’re not so much thinking of 2022 right now or even the first half of 2023. They’re making plans and investments for 2024 and beyond. They know they have people – customers, partners, employees (and their families) – who depend on them for their livelihoods. They, like me, don’t see enormous bubbles and economic catastrophe on the horizon. We could be wrong, of course. But we’re placing our bets now for the future.
And we still know that people are our most valuable asset. Sure, many companies are replacing lower-skilled workers with robots and automation. But nothing can replace a skilled employee who’s great at their job. Find me someone like that and I’m going to hire that person, regardless of whether or not we’re in a recession. I know that, if treated well, that person will add long-term profits to my company regardless of the short-term investment.
So no, we’re not in a recession. And yes we’re in a recession. And no we’re not hiring. But yes we are. You can make the case either way. That’s what people are doing. They’re right. They’re wrong. Argue away. In the meantime, small businesses who are either in strong industries or growing geographic regions will keep hiring. And even those that aren’t won’t pass up the opportunity to invest in good people for when things ultimately do turn around.