Seeing signs of softness, not accelerating weakness in small businesses: BofA's Liz Everett Krisberg

Well, after the Fed decided to cut interest rates by 50 basis points, we want to take a look at the state of small businesses, according to Bank of America's Small Business Survey. That survey found that payroll growth increased 2% year over year in August, but has basically remained flat over the last six months. Joining us right now is Liz Everett Chrisburg. She's the head of Bank of America Institute. And Liz, looking through some of these numbers, what jumped out to me is that maybe if the Fed is looking for reasons to cut 50 basis points, small businesses are the places they should be looking, because business optimism has really lagged there versus what you see with big companies. Absolutely, and good morning and great to be here. I think that you're right. We have seen optimism diverge between smaller and larger businesses. But I think the other thing that the Fed is looking at, and we heard this yesterday, is looking at the labor market. And what we're seeing in the small business data from our 11 million-plus small business clients is that payroll payments, so what they're contributing to the labor market, was up 2% in August, but that was actually down from July when it was up 3.3. But overall, over a longer period of time, that payroll payment growth has been relatively stable. Throughout all of 2024, it went from a low of up 9 tenths to up 3.3. All right, then maybe I'm wrong. There's not some weakness there that would indicate this. The way I would characterize it is we're seeing signs of softness, but not accelerating weakness. Stabilization, normalization is how I'd look at it. So do you look at this and think this is really weird to have the chairman, Jay Powell, explaining that the economy's great, the job market looks really good, and, oh, by the way, we're cutting 50 basis points. How do you square up those? Well, I think, what was the other thing he said, that the economy is basically fine. And I think that that's what our data is showing, is that it's basically fine, but it is softer and it's normalizing. But does that warrant a 50 basis point cut? Well, I mean, they obviously thought that it did. But, you know, when we look at other areas of what our business data, small business data is showing, we look at job openings, right? JOLTS, everybody looks at JOLTS. We've developed an analysis that looks at small business payments to hiring companies, OK? And that essentially aligns with what we're seeing in the JOLTS survey, but it gives us an indication about a month beforehand. And what that's showing is through the year, through this year, it has been declining, but it's really normalizing to 2019 job opening levels. Yeah, so it doesn't sound bad. It doesn't sound bad. We're still at the rate, in August, we were 17% above where we were back in 2019. So basically fine. What do you see with the consumer? You had some numbers out last week, your latest survey on how consumers are feeling about things and how they're spending. Yeah, so consumer spending, again, continues very similarly in that it continues to be basically fine. Spending growth did move up year over year. It was down two-tenths if you look at it on a seasonally adjusted basis. But I think what's really important to understand is what's driving that and its services. Almost all of the growth was services. And bringing that back to small business, when we look at the payroll payments and which industries are seeing payroll payments growth, surprise, surprise, it's the services. It's leisure, it's lodging, it's educational and healthcare services. We were talking earlier this morning about how you could have a port strike at this point, too, and how imports are up 21% in the month of August or were up 21% in the month of August as retailers and others try and get all the Christmas goods and holiday shopping goods in ahead of time. It could be a little deja vu from a couple of years ago, right? And I think what is interesting to think about, and we have to think about how this will go through, but we have seen some relief from the inflation caused by supply chain issues. So while we've seen some relief on that, the inflation has come down. It will be interesting to see how that works. That's a really interesting point. The Fed's doing this because they think they're getting inflation under control. That would be a potential place where you could see some big problems rising up again. Yeah, so we'll have to- Inflation in the supply chain. We'll certainly be paying attention to that. Well, if the supply chain issue, if that's what caused it, why aren't we back? We're still up 21%. We're, the prices are rising 2%, 2.5% now, but the 21% is still there. If it was just supply chain, why hasn't it reversed? I don't think it was just supply chain. I think that was just a contributing factor. It hasn't, it will never reverse. Well, I think when it- It will never go back down 20% on prices. I don't think it will, and why won't it? One of the reasons why it won't is because of the labor market, right? And we talked about our consumer data and the consumer spending, but when we look at the consumer income, so looking at money coming into consumers' accounts, we are continuing to see payroll growth and after-tax wage growth. They're highest for lower-income households, but accelerating the most for the highest-income households. So the highest-income households last year were flat to negative, and in August, they were up almost 2%. So you are seeing, continuing to see labor growth. We're seeing in the small business data. We're seeing it in the consumer data in terms of what the consumers are bringing into their accounts. So the labor market is softening, but it's still positive, right? It's not the double-digit gains that we had during the pandemic, but it's still growing. So it brings us back to basically fine.