How Will We Know We’re in a Recession?
If the government shuts down, collection of key data on unemployment, inflation, and spending will stop.
Good Morning!
Here are today’s highlights:
That explosion of new businesses may continue.
What can we learn from the degrading of the Amazon shopping experience?
The rising cost of insurance is slowing real estate development.
ENTREPRENEURSHIP
New research suggests that the sudden, pandemic-fueled surge in startups is likely to continue: “That surge appears to be a direct response to how the fallout of the virus quickly but permanently changed how many Americans live and work. Those changes opened doors for entrepreneurs, who, economists often contend, are best able to respond to sudden business opportunities. The opportunities came when the federal government was showering Americans with trillions of dollars in pandemic assistance, which may have given many people the capital needed to start a company and hire workers.”
“Federal statistics showed early signs of the business-creation burst. Some economists dismissed it initially as a fluke of the pandemic — one likely to quickly fade. That hesitancy was based in part on studies showing that start-up activity had been declining for several decades.”
“But the new paper by John Haltiwanger of the University of Maryland and Ryan Decker of the Fed, two of the nation’s leading researchers in the study of economic dynamism, suggests that the pandemic may have broken those trends. ‘We find early hints of a revival of business dynamism,’ Mr. Decker and Mr. Haltiwanger wrote.”
“Champions of policies to increase dynamism were less restrained. ‘This is evidence of a genuine resurgence of economic dynamism led by a spike in start-up activity unlike anything we’ve seen in the post-Great Recession era,’ said John Lettieri, the president and chief executive of the Economic Innovation Group, a think tank in Washington.” READ MORE
GOVERNMENT SHUTDOWN
If the government shuts down, we may not know whether we’re in a recession: “A federal government shutdown would cut off access to key data on unemployment, inflation, and spending just as policymakers are trying to guide the economy to a ‘soft landing’ and avoid a recession. Federal statistical agencies, including the Bureau of Labor Statistics, the Census Bureau and the Bureau of Economic Analysis, will suspend operations unless Congress reaches a deal before Sunday to fund the government. Even a short shutdown would probably delay high-profile data releases — including the monthly jobs report, scheduled for Oct. 6, and the Consumer Price Index, scheduled for Oct. 12.”
“A short shutdown, similar to the one a decade ago, would delay data releases but probably wouldn’t do much longer-term damage. Data for the September jobs report, for example, has already been collected; it would take government statisticians only a few days to finish the report and release it after the government reopened.”
“But the longer a shutdown goes on, the more lasting the potential damage. Labor force statistics, for example, are based on a survey conducted in the middle of each month — if the government doesn’t reopen in time to conduct the October survey on schedule, the resulting data could be less accurate, as respondents struggle to recall what they were doing weeks earlier.” READ MORE
The small businesses that serve federal employees are bracing for a blow: “A shutdown could inflict serious pain on many small businesses in Washington, Maryland, and Virginia, where hundreds of thousands of federal workers help power the local economy during their daily commutes. Many are watching the debate in Congress with growing frustration and a familiar sense of dread. During a shutdown, thousands of federal workers would be furloughed or would continue to work without pay. And many would cut back on spending.”
“And unlike furloughed workers who will eventually receive back pay when the shutdown ends, stores that have lost business will have no such recourse. In Maryland, which is home to about 139,000 civilian federal employees, businesses like day-care centers, coffee shops, and retailers could feel the effects.”
“Stacie Lee Banks, an owner of Lee’s Flower and Card Shop in Washington, said fresh-cut flowers might be the first thing furloughed federal workers cut from their budgets. ‘People need food, and they need housing and shelter,’ Ms. Banks said, ‘but they don’t need flowers.’”
“Nationwide, 70 percent of small-business owners said in a recent survey by Goldman Sachs that their businesses would be ‘negatively impacted’ by a government shutdown. Of those, 67 percent said customer demand would drop because of economic uncertainty and instability.” READ MORE
ECOMMERCE
What went wrong at Amazon? And what can we learn from it? “My daughter needs a purple wig for school, and she needs it by this Friday. When I got the news Monday night, I had just one reliable option—Amazon—and the rancid-tapioca feeling that comes with using it. The problem isn’t just the company’s rough track record with worker safety, or its devastating effect on brick-and-mortar stores, or knowing that I was about to toss more data into its insatiable maw. Despite all that, I’m still a Prime subscriber. Lately, though, shopping on Amazon has become an exercise in frustration.”
“My purple-wig search started with sponsored listings from unfamiliar brands with just a small disclosure noting that they’re advertisements. The organic results eventually do show up, offering hairpieces from brands with names such as DAOTS, MorvallyDirect, and eNilecor. Scroll only a little deeper into the sea of indigo fibers, and the sponsored items resume.”
“What happened to Amazon? The company no longer excels at the thing it’s supposed to be best at: shopping. Its unparalleled convenience and cost helped turn it into an ecommerce juggernaut, one that now faces an antitrust lawsuit from the Federal Trade Commission over alleged anticompetitive practices.”
“Now around every corner lies a brand you’ve never heard of, selling a product you’re not sure about. Good deals on name brands are harder to come by. Amazon’s dominance has also transformed it into a different kind of company. Along the way, the famously customer-obsessed company has lost track of what its customers actually want.” READ MORE
HUMAN RESOURCES
More companies are finding and keeping employees by offering tuition reimbursement: “Tuition benefits have been around for many years, but some companies are promoting them more—and more employees are partaking—amid a tight labor market, rising concerns about student-debt burdens and skyrocketing college costs. The nature of the programs is also shifting, with several companies adding prepaid options so employees don’t have to shell out their own money for degrees. Program offerings, which may be for online or in-person classes, vary widely. For example, benefits may be different for full-time and part-time employees, or offerings may vary based on an employee’s role within the organization.”
“There may be restrictions on the type or number of degrees employees can seek, and how long a worker needs to be at the company to qualify. There can also be minimum-grade requirements, or clawback provisions if employees leave while they are pursuing a degree or for a certain time after completion.”
“At Chipotle Mexican Grill, a restaurant company based in Newport Beach, Calif., employees who complete the program, on average, stay with the company for twice as long as those who haven’t gone through the program, says Daniel Banks, director of global benefits.”
“Employees are also more likely to be promoted, he says. Since 2019, 30.5 percent of Chipotle employees enrolled in tuition-assistance or tuition-reimbursement programs through its education-benefits provider have been promoted, according to data provided by the company.” READ MORE
New York City’s food-delivery workers have won a big minimum-wage hike: “A judge on Thursday said New York City regulators could move forward and raise minimum wages for app-based food delivery workers, ruling against three delivery giants that had challenged the rule. The new minimum pay law, aimed at forcing tech companies to better compensate gig workers, will require the platforms to pay the workers about $18 per hour at first, starting in October, and to increase that amount to $20 per hour by 2025. Delivery workers currently make about $11 an hour on average, according to the city’s estimate. The increase was supposed to begin in July, nearly two years after the City Council passed a landmark set of bills meant to improve working conditions for the couriers.”
“The tech platforms argued that they would be forced to pass on the cost of the higher wages to consumers by raising prices. They said that the city’s modeling did not correctly calculate the degree to which higher prices would harm local restaurants.”
“And they said that the new system would work to deliverers’ disadvantage because the companies, to control costs, would have to strictly monitor how much time workers spent being on the apps but not actually making deliveries.”
“In his decision, Justice Moyne rejected these arguments, and said workers could still have flexible arrangements while earning a minimum wage.” READ MORE
CONSTRUCTION
Rising insurance rates are slowing development: “A dramatic increase in property insurance rates this year has helped spur a slowdown in real estate sales and development in South Florida – and it's a situation that's not expected to improve anytime soon. According to industry experts, commercial property insurance rates have spiked from 25 percent to 100 percent over the past year, depending on the property type and location. Deductibles are also higher in most cases. Combined with rising interest rates, that has greatly increased the carrying cost of buying commercial real estate. For developers, the triple whammy of expensive builder’s risk insurance, higher interest rates and elevated construction prices can make some projects too costly to pursue.”
“Matthew Rieger, president and CEO of Miami-based Housing Trust Group, one of the state’s largest affordable housing developers, said the cost to insure an apartment in his portfolio has jumped from $351 a unit in 2018 to $1,654 now.”
“According to Marcus & Millichap’s Institutional Property Advisors division, South Florida recorded 1,790 apartment starts in the second quarter – 37 percent below the average quarterly starts over the past two years. Most markets nationwide posted a slowdown in multifamily construction; however, South Florida has one of the highest insurance burdens in the nation.” READ MORE
THE 21 HATS PODCAST
I’ve Never Had to Lay Off Anyone Before: This week, Sarah Segal tells Shawn Busse that the other shoe has dropped. A couple of months ago, as she’s shared here previously, Sarah lost two big clients in one week. Now she takes us through her decision to lay off three of her employees, including what it means for the business and what it means for Sarah’s own role in the business. Before the layoffs, she had gotten to the point where she was working on the business—but now that’s changed. “I'm not working on the business,” she says. “I am working for clients. I am getting the job done. I am making sure that we're successful with our clients, and that is my priority right now.”
“Plus: We also discuss how to choose a CRM, why Sarah and Shawn’s home cities of San Francisco and Portland have been getting such bad PR, and whether former business owners are employable. “I wouldn’t hire me,” says Sarah.
You can subscribe to the 21 Hats Podcast wherever you get podcasts.
Thanks for reading, everyone. — Loren
