You're listening to the Bloomberg Opinion podcast. Catch us Saturdays at one in seven pm Eastern on Bloomberg dot com, the iHeartRadio app and the Bloomberg Business App, or listen on demand wherever you get your podcasts.
Welcome to Bloomberg Opinion I Amy Morris. This week we focus on your wallet. Members of Generation Z and some millennials are feeling some intense economic anxiety. How is that different than any other generation that came before. Also, holiday shopping is upon us, and you might not be happy about the rising prices, but you're spending like you don't care. And you might have also noticed how the dining industry
is going through a sweeping overhaul. But we begin with a look at small businesses and how America's smallest companies can tell us a lot about the health of the US economy and where the vulnerabilities are. Earlier this year, President Biden rebranded his economic policy with a plan that includes an investment in small business.
First, making smart investments in America, Second, educated and empowering American workers to grow the middle class, and third promoting competition to lower cost to help small businesses.
Let's bring in Bloomberg opinion columnists Jonathan Levin, who covers US markets and economics, and Jonathan, what are you seeing in America's small businesses that's giving you a read on the economy and where there might be weaknesses.
So basically cautious optimism. I always think it is important to look at the small business space because they can be sort of a Canara in the coal mine, especially in an environment like this of contracting credit and higher interest rates. Of course, you know, small businesses are more sensitive to something like this because they have fewer financing options to start with. Right, They're basically dependent on what
their bank will give them. They can't go out to the bond market, for instance, and they are extremely extremely exposed to those floating or variable rate loans.
Right.
So you like, when we think about housing markets, like, you know, why is the United States housing market feeling so much more resilient than say, say Canada. It's it's that variable rate effect, right, Like you know, when you have a variable rate, as soon as the Fed goes out and tightens, everybody feels it. It's not just the
people going out and getting getting new loans. So I did think it was very important to look at small businesses, but the big picture is a picture of resiliency, and to sort of give everybody the tld R at the at the top, I don't want to say that they can hang in there forever. I don't think that small businesses are going to be able to hold up if
the FED stays this tight for the foreseeable future. But at the moment, there's no reason to think that the small business sector is at imminent risk of some sort of collapse.
Far from it.
Actually, you actually made a really good point in your column on the Bloomberg terminal about how federal support during the pandemic may have impacted. This may have sort of skewed the numbers a little bit artificially supporting these businesses, so that you know, even had they not had that federal support, they might not have been here anyway.
So you know, one of the reasons I like to dip into the bankruptcy space from time to time is to do a little bit of myth busting, right, and so tourists in the bankruptcy space well, from time to time on Twitter things like that or act I should say, they will pull up the chart of the trend in bankruptcy is. You know, maybe you'll take like a one year rolling average and you'll say, oh, my goodness, bankruptcies are trending up. And that is indeed true of small
businesses as as well. But it's important to think about level as well as trend and buy in law. Large bankruptcies are still pretty low in the United States of America relative to what they average, say from like twenty fifteen to twenty nineteen, to give you a like a
pre pandemic snapshot. And the reason for that is because you know, the federal government came out with these extraordinary relief programs during the pandemic that kept some firms afloat that might have organically gone under in the absence of
the pandemic and that extraordinary support. Right, So there's a sense that we're really just sort of playing some catch up here, or in the jargon, doing a bit of normalizing, and that until we really you see the bankruptcy trends break out ahead of something that we would consider normal, it does feel early to be worrying about what's going on here.
So with these smaller firms, they are hiring and they are spending money. It's just slowed but it is stable. To your point, it's the stabilization you need to watch, not so much the trend toward fast hiring or a lot of money versus the slowdown.
So, like I said, nobody's pretending that they aren't facing headwinds. This has got to be a difficult environment for them. When when an extremely interest rate sensitive group of businesses is suddenly is suddenly faced with the velocity and the levels of interest rates that we're facing across the country. Nobody's saying that that isn't heart But the empirical evidence suggests, as you point it to, that they are still spending money, right, So Bank of America uses their own internal data to
track spending from small businesses. The headline on the NFIB is that small business optimism looks to be very weak. But my interpret rotation of that is, okay, is that literally telling us something about the economy or is it telling us more about the partisan nature of the world we live in today. I think there's some of the former, but there's also a good chunk of the latter. So we have to take this weak small business confidence with
sort of a grain of salt. Having said all of that, you know, to your point, I do think that there's a self fulfilling aspect to all confidence, So it doesn't really matter at the end of the day why people feel bad. They might feel bad because their candidate, you know, isn't doing well in the polls, or they're chosen president
isn't in the White House. If they feel bad, they feel bad, and eventually that can actually be reflected in the amount of investing that they do, the number of people that they hire, and so on and so forth. So I say, take the NFIB small business sentiment survey with a grain of salt. But if it stays a negative territory for the foreseeable future, could it start to matter? Yeah, for sure.
Well let's get into that a little bit. You had referred to small businesses as acting as something of a canary in the coal mine when it comes to the health of the US economy. So over the next quarter, let's say, what are you going to be looking for? What should we all be watching for when that canary goes down into the coal mine.
So I would, in terms of watching the bankruptcy data itself, this stuff could get really noisy, So I would not get excited about small business bankruptcies unless you saw a really meaningful breakout sort of to the upside. And the
reason for that is it's sort of multi foil. As I said, we're still at really modest levels of bankruptcy, so like you would sort of want to wait for the normalization to take place and see if the trend keeps going A and number two there is there's something else going on in the bankruptcy code at the same time, and it's hard to disaggregate that from the macroeconomic trends.
Right.
So basically we often forget this. But in twenty nineteen, an Act of Congress created this thing called sub Chapter five in the Chapter eleven code, and it gave a lot of small businesses access to sort of a form of reorganization that they probably wouldn't have been able to access in the past, both because of the complexity of the code and the inherent costs and all of that. And so this for the first time, starting when this became effective in twenty twenty, brought a lot of small
businesses into the bankruptcy data for the first time. And a lot of proponents of this change would say, this is actually a good thing, right. This means that more small businesses are availing themselves of this new structure to
try and survive. Not it's not a bad thing at all, potentially right, So as sub Chapter five becomes more popular, we need to be aware of the fact that the numbers of small business bankruptcies maybe going up, and it may not necessarily be telling us anything about macroeconomic cycles. So my point on the bankruptcy's data is I would be very cautious with getting carried away about small ticks
up or small ticks in the other direction. I would tend to watch other indicators more clo including what's going on with the payments data. Bank of America is a great resource fairly real time, and of course I would be watching what's going on with jobs. I think, you know, people often tell you that the labor market is a lagging indicator. I think it's more complicated than that. I think hiring is a great way to express your relative
confidence in the economy. It is sort of a medium term commitment that you, as business owner make with a potential employee, and it tells us a great deal about where the proprietor of that business sees the economy and their business prospects. In three months or six months or twelve months down the line, and so far it looks like, you know, they think things are going to be okay in that horizon.
Jonathan Levin is a Bloomberg Opinion columnist who covers US markets and economics. Bloomberg Opinion continues with a look at holiday shopping and even with the higher prices, that's not slowing you down. This is Bloomberg.
You're listening to the Bloomberg Opinion podcast count US Saturdays at one and seven pm Eastern on Bloomberg dot com, the iHeartRadio app, and the Bloomberg Business App, or listen on demand wherever you get your podcasts.
This is Bloomberg Opinion. I'm Amy Morris. We are well into the annual ritual of shopping, baking and planning for the holiday season, the food and the gifts and the travel. And in fact, this holiday season is bound to be a blockbuster. The National Retail Federation expects shopping to hit record levels this month and in December. Kristin McGrath is an editor with Retail Me Not, which finds consumers are spending twenty nine percent more than last year.
Retailers are starving extra early because they want shoppers to do multiple rounds of shopping.
And even though consumers are not happy with these higher prices, that's not slowing them down. Let's talk about this with Bloomberg Opinion columnist and author of the Bloomberg Opinion Today newsletter, Jessica Carl And Jessica, how are things different from last year? Economists had predicted that the US was going to enter a recession.
Yeah, so last year's predictions did not work out this year, hopefully we won't enter a recession, but people still have mixed feelings about whether that will happen. But really, what happened this year was the disconnect between the consumer and what economists saw. So consumers weren't happy about the economy all year long, and that was the big economic story.
Of last year, right right, the big disconnect between consumer sentiment and consumer behavior. What's causing that disconnect.
It has to do with the thing called money illusion. So people love to hate on the economy and they'll say, oh, everything was cheaper years and years ago, but they don't recognize that their wages have gone up and things have just gotten more expensive across the board. But they wouldn't be like happy about. You know, they're not talking about
their wages. They're talking about this price sticker on the bag of oreos that they're buying at the store, which, by the way, it's interesting there's this big theory about how oreos are also a stagflationary trend, where like the cream inside of them, the ratio that to the cookie
is going down. So there's these visible, tangible signs that people start to worry about the economy, and that's like an interesting thing, and it's totally It says a lot that they're saying a lot of different things versus what they're actually spending their money on. So people are still spending and spending and spending. So economists are very confused by the sentiment being very negative, but yet they're spending and the credit card debt's going up and stuff like that.
So it's just interesting.
When you talk about like shrink flation, like the example that you just gave with the oreos, many people do tend to see the economy through the lens of their purchases, how much they're paying for items and the impact of I guess shrink flation for lack of a better word, what are you seeing among consumers is that the going trend at this point.
I think they're definitely more observant of when the quality of their products goes down. There's also you know, and they're usually lower ticket items. They're you know, bag of chips, cake mix, which is interesting. People observe that Betty Crocker's cake mix, the weight of the dry ingredients went down, so they actually just are putting less cake mix in the box and telling you to use the same amount
of wet ingredients. So people are picking up on these little things that are happening in their day to day lives, and that's causing them to believe that the economy is really bad. And there's probably a lag right if we're seeing really great disinflationary data right now, that will take time for consumers to kind of realize that, oh, things aren't getting more expensive. But the reality is that those prices that went up in our inflationary times are going
to kind of stay at that level. So that's not making people happy.
I understand the anger or the discontent with the inflation and with the prices. However, could that disconnect between the consumer spending and the consumer sentiment be politically motivated?
It can certainly be politically motivated. I think if you look at who's president during the different times, everyone blames the bad economy on that current president if they don't agree with their political belief Sure. So yeah, I mean during Trump, Democrats said the economy is awful, and during Biden, Republicans will say the economy is awful. And the reality
is that Biden's economy is actually really good. He just has like a messaging problem and he needs to kind of appeal to more moderate voters in that respect, which we've also written about. But it's a challenge definitely from a messaging standpoint, especially when you're seeing little scigns that
make you believe that the economy is bad. And we also talked about this in terms of the vibe session all throughout last year, which basically just says people are saying the vibes are off, the vibes are off, but what does that really mean. They're still spending, They're still propping up the economy, and that's hopeful we'll stay true next year as well.
And were you You mentioned a few baking items as far as shrinkflation is concerned. But let's get into it a little bit because we are entering the holiday season. This is when we travel, we shop, we give gifts, we bake. What are we anticipating then, if the consumer sentiment is down, but the consumer spending of late has been higher, could this be a big boom for the holidays shopping season.
The holiday shopping season has definitely been pushed forward, and you can already see this week if you go into your browser, this is the week. You know, we're talking leading up to Thanksgiving, but we're not Black Friday yet. You can see that people are already putting things on sales. Sites are having these big sales even before Black Friday. I think part of that is because the retailers are kind are confused about what consumers are willing to spend.
They you know, people say they're on a budget, blah blah blah, but like all signs point to them spending a crazy amount of money. There's there's I think that TSA said they're expected to be a record travel season. They always say that, but it should be a record travel season this year. So people are spending on flights, they're spending on gifts, they're spending on food. So I mean, I think it could be a blockbuster but nobody really knows yet, obviously.
And we are talking with Bloomberg opinion columnist Jessica Carl about consumer sentiment during the holiday season. Also, Jessica, another indicator are people saving? Could this spending all of our money come back to haunt us?
Yes, I don't know if people are saving as much as we would hope. During COVID we did have this big, big build up of consumer saving. So that is good in respects In that way, our coffers are still pretty strong. But people are spending money on entertainment. There's just spending and spending and spending. Bloomberg actually ran a big graphics piece yesterday about auto loans and how those our auto
loan delinquencies are up. A lot of people take out these auto loans and they have no ability to pay them back and credit card that is also, you know, troubling. So I think there are these signs that going to the American consumer be weakening a bit, but also the job market hopefully will stay strong and will continue to see people spend. But if there are signs that cause people to pull back, that would not be a good thing.
What is then the conventional wisdom for twenty twenty four. We all seem to get twenty twenty three a little bit wrong, a little off. What about twenty twenty four?
I think the recession stories hopefully behind us. If those disinflationary trends continue, that will be probably the big story, and hopefully the economy will improve and strengthen. I think the job market is also something to keep an eye on. If people start to feel as though they're stuck in their jobs whereas though they can't get hired elsewhere, that's definitely going to cause the economy to weaken. So there's just some certain things to keep an eye on, like boys.
But the good news is that the CPI numbers are very positive and hopefully will continue to see those come down in the future.
And what are you watching for over the next few months. We only have a few more weeks before the end of twenty twenty three.
I always love to see the holiday shopping trends. I After Christmas, it's always interesting to look at the returns and see how many people are returning things and stuff like that. But yeah, I think hopefully we will see the consumer sentiment index improve, like ideally that would they follow the inflation data that we're seeing now. But like I said, there could be a lag, and I mean that whole money illusion could continue, but in an ideal world that would stop.
Does that create problems for anything more than our ability to predict what consumers are going to be doing when there's that disconnect between the sentiment and the actual action.
And sometimes people talk about it being a self fulfilling prophecy, which we did hear a lot about last year. If you say the economy is bad, bad, bad, but it's actually okay, then you'll start to believe it at some point and you just will rein back your own spending. And if everybody's doing that, then that will cause the econ to enter some type of recession, which is not good. But if people continue to spend, then that illusion is kind of a nine. It doesn't really impact as much.
But if people really start to pull back, then that's where you'll see a problem.
Jessica Carl is a Bloomberg Opinion columnist and author of the Bloomberg Opinion Today newsletter, and coming up, we'll look at generational financial anxiety and how it's impacting millennials in gen Z. You're listening to Bloomberg.
You're listening to the Bloomberg Opinion podcast. Catch us Saturdays at one and seven pm Eastern on Bloomberg dot Com, the iHeartRadio app and the Bloomberg Business App, or listen on demand wherever you get your podcasts.
You're listening to Bloomberg Opinion. I'm Amy Morris. Less than one third of Generation Z feels financially secure. In more than half say they're worried about not having enough money, and not just a little worried either. After years of being told that everything's going to be just fine, millennials are treading water. Seventy three percent living paycheck to paycheck. Okay, let's learn more about this generational financial anxiety with Bloomberg
Opinion columnist Aaron Lowry, who covers personal finance Arin. Why can't we just tell millennials and Gen z ers simmer down, It'll be all right, take control of your financial financial lives like the rest of us had to do.
This is different, It's never too because again, I just always feel the need to assert this up top with millennial conversations. Oldest millennials are forty two years old. We are no longer children, right, we are.
No longer in our twenties.
The very youngest of the millennial generation is very close to thirty. And I think that that contextually is so important, because you can't tell a forty two year old just wait, just wait your turn.
It's gonna come. Everything's going to even out. We're starting to feel.
A little panicked at this point, and I think a big part of that too is there have been so many quote unquote once in a lifetime experiences that it feels like happens every time millennials have almost gotten that financial foothold. You know, the Great Recession happened as the eldest of millennials are coming into the workforce. Don't worry,
it's a recession. It'll pass, You'll be fine. Okay, Great, we started to get control, then the housing market goes crazy and it's so hard to buy a house, and then all of a sudden, a pandemic comes. And it just feels like any time we get the slightest bit of advancement, something comes to punch us in the mouth and it's so frustrating.
Is that why the baseline of financial comfort is more elusive for this generation. It's just rotten timing.
Part of its rotten timing, and let's also be honest, part of it is systemic issues, wage stagnation. It is not app to apples right now when we're looking at trying to get into the housing market.
I wrote a column a while.
Back about you know, boomers, if you're comping the average salary that a boomer made to the average salary a millennials making, and the cost of houses, our homes are almost four times as expensive for a similar salary. So we don't have the same level of access that a lot of our parents had. And so this notion of we figured it out, you will too is just not helpful advice.
And to bring gen Z into this, I think part.
Of it is, yeah, they are younger and maybe things will be okay, but they're also watching us.
Just to be clear, I'm thirty four, im a millennial.
They're watching us and feeling like maybe it won't be okay because it doesn't look like it's going to be okay for those guys.
Let's dig into that a little bit. What is it? What else is it that millennials and gen Z may be facing that the rest of us gen X here and then there's a boomer in my house as well. The rest of us didn't have to face as b and Gen xers. It is different, and you mentioned housing. What else is out there that's different that we didn't have to deal with?
You know? I also want to acknowledge gen x and boomers had their own things. There have been once in a lifetime experiences for every generation and it hasn't just been a fleet a flat straight road for absolutely everybody. I do feel like what is feeling like a big gap here? Life is just more expensive. Even when we compare for inflation, wages have not gone up in the
same way to comp for that. There's a stat flying around that someone fact checked me on it, but it basically was like, Hey, if your parents were making one hundred thousand dollars in their thirties in the eighties, you have to be making close to three hundred thousand dollars for that to be the same amount of money.
And that's heavy to us. For one.
For two, student loans aren't even comparable, you know, I know that there are plenty of Gen xers who had student loan debt. The price of college is not even remotely the same. It does feel like millennials were sold this bill of goods.
Of Hey, if you just go get a four year degree, the.
World is your oyster. You will be able to go have job security. Again, that hasn't really proven to be true. And I do see a little bit of an advantage for gen Z here where it feels like they have kind of learned from our example. They are a little bit more skeptical of college. They are looking at alternative options that still yield a good salary.
Technology is really changing the game here. AI is opening up a lot.
Of questions, so perhaps things will be different for them. But it does feel for millennials, and again maybe this is just a feeling. Maybe factually we are wildly off base. I don't think so, but that everything feels way more expensive and that we aren't being given the same kind of economic opportunities the generations before us had.
And we are talking with Bloomberg opinion columnist Aaron Lowry about generational financial anxiety pacifically with millennials and gen Z. You talked a little bit about housing. You talked about the cost of an education, which you're absolutely right, gone it's skyrocketed since I was in school. So let's look also at healthcare that is often linked with employment. Why is that so risky for these up and coming generations.
It's such an odd practice to be linking health insurance to employment because we know statistically people will lose their jobs at some point. Even if you are an exemplary employee, odds are at some point in your professional career you're going to get laid off. And the fact that somebody could get laid off, and if that coincides with a major medical issue, that could put them in an incredibly
vulnerable position. Even if it doesn't, even if you are gainfully employed with health insurance, Let's be honest, a big medical issue could will put you in an incredibly financially vulnerable position. And it is unbelievable that we have created a system where it almost feels as if you're one huge health issue away from bankruptcy. And so much bankruptcy
is tied to medical debt and medical situations. So the fact that a lot of every generation, but certainly a lot of Millennials and Gen Z have been experiencing layoffs and then either have to pay huge out of pocket premiums in order to gain access to mediocre health insurance while in between jobs, or just risk it, and then if something even kind of minor happens, that could be tens of thousands of.
Dollars of medical debt that you're going to have to try to pay off.
What is it that we can do as a country to help establish a safety net?
Oh man, we're going to get right into all of the hot button, dog whistle type of topics.
I feel for people. I wish that.
There was an understanding that we could have a basic safety net and still be a deeply capitalist country. Sure, the idea of having baseline safety nets for your population to just make sure that folks can't easily fall through cracks does not have to be a tenant of policies that people feel is how dare you? I'm just going to say the S word socialist, and I think that that makes people really anxious for some reason. It doesn't necessarily have to mean that. It could be that we
are one of the wealthiest nations in the world. Why are so many of our population incredibly vulnerable and living in a situation that if one thing goes wrong, one job layoff, and their one paycheck away from being unable to afford basic necessities, being unable to afford housing, being unable to afford transportation, being unable to go to the doctor. That's just it's not respectful, and it doesn't give our
citizens dignity. And I've always been confused while we're allowing this to happen, and the fact that we think it's perfectly okay to have the employer be perterentialistic and provide retirement benefits and healthcare benefits, but the idea of the government and us looking after each other as citizens isn't the same.
Just doesn't quite make sense to me.
And briefly, Aerin, you had said in your column that one of America's strengths, so what is considered one of America's strengths, it's individualism, might also be very detrimental. How so, well, just.
Kind of on that same topic, the idea of we do have this deeply entrenched, bootstrapped narrative belief, and part of it being true that you know, this is a country where you can rise up into a different socioeconomic class than the one that you were born into. That does certainly still exist. It's perhaps a bit harder than people pretend that it is, but it exists as an option. However,
I don't know why we can't hold two truths. That we can both be a society that enables people to catapult into a different socioeconomic group, but also make sure that there is base level safety nets so that even our quote unquote bottom socioeconomic groups still have all of their basic necessities that and are living a life of some level of dignity.
Aaron Lowry is a Bloomberg Opinion columnist. She covers personal finance and is the author of the three part Broke Millennial series. You're listening to Bloomberg Opinion. I'm Amy Morris. The dining industry is going through an overhaul of sorts. The economics of restaurants is changing. Let's find out more with Bloomberg Opinion columnists Justin Fox, who covers business. Tell me what's changing, what has already happened, what changes are coming.
Basically, Americans are buying about as much food at restaurants as they were. They're on the same trend as before the pandemic. It just kept going up and up and up. And employment at restaurants is still way below that trend. So it's basically as much as being served with fewer servers. And that's something I wrote about it a year ago, and I was checking up on the data to see whether that had changed, and it hadn't. But then I looked at something else, which was wages for restaurant workers,
and they actually started going up. I mean they jumped in early in the pandemic, but they'd been going up much faster than earnings for everybody else really since around twenty fourteen.
And that was before the pandemic.
You know, some of it might be that working age population growth was already slowing down, but the really obvious reason is that a lot of states and cities were passing minimum wage increases, and basically the restaurant industry is the most likely to pay minimum wage, and a lot of places they're allowed to pay something below it until you count in tips. Those have had a big effect
on restaurants. The funny thing, though, is you look and you just can't see any effect on employment at restaurants before the pandemic. But I just get the sense that with this big shock of the pandemic, with initially this sort of fifty percent drop in business and employment and then a pretty quick recovery in how much business they were getting, but it was much harder to bring that many employees back. It's just led to this rethinking of
how restaurants work. I mean, and you hear a lot of it from especially like high end restaurants, like saying that the business is really hard to make money and even harder than it was before, and lots of experiments with alternatives to standard table service.
So is this then a permanent change? Are we seeing the evolution of a new way of the dining industry to survive?
Yeah?
I think so. I mean, I think it's combination of the higher pay for restaurant workers and then this sudden shock that gave everybody sort of forced everybody to rethink how they were going to do business, and also I think gave a lot of restaurant workers this thought that, wow, maybe I don't want to work in this business anymore.
You can just see in the national economic data these super big changes, and I mean, one really dramatic one is that productivity at restaurants, at full service restaurants, which is just measured as output per hour worked, adjusted for inflation, it basically went nowhere for the first fifteen years of
this century. You know, productivity growth hasn't been great anywhere, but it was more than that in the rest of the economy started to rise a bit after twenty fifteen, and then this huge jump in twenty twenty one, and it fell back a little bit last year, but it's still just much higher than it was before. That just means you're getting more output, which in this case is food served to people per hour work in restaurants.
What's the next step in this readjustment, in this fix.
Part of what's happened, especially during the pandemic, was that a lot of work that was done within the restaurant bringing a meal to you all got outsourced to contractors for grub Hub and Postmates and all of those kinds of places. So there, to some extent, what you might be seeing is not some amazing productivity revolution. It's just Okay, we don't have waiters anymore. We just make food for delivery.
And so what's happening is those delivery workers tend not to do super well financially, and some play New York, where there especially big part of life here. The City of New York is imposing a minimum wage there too. It will be interesting to see. The impression from with restaurants is that initially you won't see that much effect on how many people are doing it, but over time it's going to change the choices that places are making.
All right, justin, thank you for taking the time and explaining it all to us. We appreciate it.
Thanks for having me.
You can get anything you want at Alice's restaurant.
Walk around.
Justin Fox a Bloomberg Opinion columnist covering business, and that does it for this week's Bloomberg Opinion. We are produced by Eric Mullow and you can find all of these columns on the Bloomberg Terminal. We are available as a podcast on Apple, Spotify or your favorite podcast platform. Stay with us. Today's top stories and global business headlines are coming up. I'm Amy Morris, and this is Bloomberg.