Small Businesses To Tackle Long List Of Challenges In 2023
NEW YORK – As 2023 begins, small businesses will face a mix of old and new challenges. A looming recession, high (but easing) inflation and labor woes are just a few issues that small businesses will have to deal with after 2022. There are also new rules, such as a proposal to change how gig workers are classified and the fact that more states are making it a law that pay must be made public. After three difficult pandemic years, what happens in 2023 will significantly impact whether small businesses across the country can stay afloat.
In some ways, whether or not the economy is headed for a recession is less important for small businesses than day-to-day operations.
According to Nela Richardson, chief economist for payroll company ADP, small business owners should concentrate on larger issues such as Labor and wages.
“For the most part, the recession is an academic question,” she said. “We won’t know for several months until it happens, and no one on Main Street makes that call. It has nothing to do with hiring and turnover.”
Given the economic uncertainty, small businesses will need to keep costs under control and operations running as efficiently as possible, according to Ray Keating, chief economist for the Small Business & Entrepreneurship Council.
Technology, according to Keating, can help with efficiency, and one way to keep costs low is to cast a wider net in terms of suppliers.
Businesses must keep a tight grip on costs because inflation appears to have peaked last summer but remains high. According to the most recent government data, consumer prices rose 7.1% year on year in November, down from 7.7% in October.
According to experts, inflation is unlikely to return to pre-2020 levels owing to higher wages and low employment. According to the monthly employment report released on Friday, wages increased by 4.6% year on year in December, with the unemployment rate remaining at 3.5%.
“We want unemployment to rise because if it doesn’t, wage growth will slow, and not only is there no evidence of that happening, but wage growth is about to get rocket fuel this time of year when wages rise,” said David Lewis, CEO of HR consulting firm Operations Inc.
He expects inflation to remain in limbo.
“I don’t see inflation falling significantly… but I don’t see it is rising above that 8% level,” he said.
Hiring and retaining employees is a constant challenge for small businesses. The situation is especially bleak at the start of the year. Because companies typically give raises or bonuses at the end of the year, many employees use mid-January to mid-April to determine whether they need to change jobs.
“Everything we’re seeing or hearing suggests that companies need to look at increases that are double what they used to do in the last, on average, 15 years to keep up with everyone,” said Lewis of Operations Inc. “Unfortunately, smaller businesses have the fewest resources to contribute.”
Because small businesses need help to keep up with raises at larger corporations, they will need to find new ways to retain employees in 2023.
According to Keating of the Small Business & Entrepreneurship Council, more extensive on-the-job training could be one solution for small businesses in 2023.
“Not that they don’t train them now, but they need to go deeper than they have in the past and train across the board. “That’s one of the solutions to these labor issues,” he said.
THE GIG WORKER RULE PROPOSED
The Labor Department has proposed a rule that would make it easier to classify independent workers as employees, contributing to a long-running debate over whether gig workers such as Uber drivers or Instacart delivery workers are contractors or employees.
According to the Labor Department, the proposal will protect workers and “level the playing field” for businesses that correctly classify their employees, reducing the number of misclassified employees.
Employees are eligible for benefits such as the minimum wage and Social Security. However, critics of the proposed rule argue that gig workers only sometimes want employee status and that the new rule will burden small businesses.
The proposed rule is “much too broad, unwieldy, arbitrary, and confusing,” according to Karen Kerrigan, CEO of the Small Business & Entrepreneurship Council. “If enacted, it will drag countless numbers of independent contractors and freelancing individuals into the misclassified pit,” she added.
The proposal only applies to Labor Department-enforced laws, such as the federal minimum wage. Employers and courts, however, frequently use Labor Department rules as a guideline for larger issues.
The final Labor Department decision is expected this year, likely in the first quarter.
CHANGES IN THE MINIMUM WAGE/STATE REGULATIONS
Finally, small businesses should be aware of upcoming regulatory changes, particularly state regulations, that will take effect in 2023.
In 2023, 27 states will raise their minimum wages. In Michigan, for example, the minimum wage is set to rise from $9.87 to $10.10 per hour. California has set the minimum wage for all employees, regardless of employer size, at $15.50 per hour. This is shifting from $15 for employers with 25 or more employees to $14 for employers with fewer than 25 employees.
Pay transparency legislation is also taking effect. California began requiring employers with 15 or more employees to list salary ranges on job postings on January 1. In New York, a salary transparency bill requiring pay ranges on job postings is set to take effect in September.
Minimum wage and pay transparency laws vary greatly by state, so small businesses should stay current on any local laws changes.
SOURCE – (AP)
BANK 2023: Class Action Suit Filed Against Silicon Valley Bank Parent
A class action lawsuit is being brought against the parent company of Silicon Valley Bank, its CEO, and its CFO on the grounds that they didn’t tell the public about the risks that rising interest rates would pose to their business.
A lawsuit was brought against SVB Financial Group, CEO Greg Becker, and CFO Daniel Beck in the Northern District of California. It requests that investors in SVB, between June 16, 2021, and March 10, 2023, get specific damages.
The Federal Reserve’s warnings about interest rate hikes needed to be adequately taken into account in some of SVB’s quarterly and yearly financial reports, according to the complaint brought by shareholders led by Chandra Vanipenta.
In particular, the lawsuit argued that annual reports for 2020 through 2022 “understated the dangers posed to the company by not reporting that likely interest rate hikes, as detailed by the Fed, had the potential to create permanent damage to the company,” the lawsuit stated.
Just as the tech sector began to expand, venture investors opened accounts at Silicon Valley Bank.
Additionally, it asserts that the business “failed to disclose that it was particularly susceptible to a bank run if its investments were adversely affected by rising interest rates.”
Small businesses and people who had deposits at the financial institution are concerned after Silicon Valley Bank’s collapse, which has shaken the technology sector. Some people are relieved by the Biden administration’s decision to guarantee all Silicon Valley Bank deposits over the insured maximum of $250,000 per account.
Silicon Valley swiftly became known as the “go-to” location for venture capitalists seeking financial partners more receptive to novel business ideas than its larger, more established competitors who were still lagging in terms of technology.
Just as the tech sector began to expand, venture investors opened accounts at Silicon Valley Bank and recommended the entrepreneurs they were funding do the same.
Their friendly relationship ended when the bank revealed a $1.8 billion loss on low-yielding bonds bought before interest rates spiked last year. This alarming news sparked a disastrous run on deposits among its tech-savvy customer base.
SOURCE – (AP)
Buffett Touts Benefits Of Buybacks In His Shareholder Letter
OMAHA, Nebraska — Stock buyback critics, according to billionaire Warren Buffett, are “either an economic illiterate or a silver-tongued demagogue” or both, and all investors benefit from them as long as they are done at the right prices.
Buffett used a portion of his annual letter to Berkshire Hathaway shareholders on Saturday to tout the benefits of share repurchases, which have riled up Wall Street critics like Sens. Elizabeth Warren and Bernie Sanders as many other Democrats. The federal government even imposed a 1% tax on buybacks this year after they surpassed $1 trillion in 2022.
“When you are told that all share repurchases are harmful to shareholders or the country, or especially beneficial to CEOs, you are listening to either an economic illiterate or a silver-tongued demagogue (characters that are not mutually exclusive),” Buffett, a long-time Democrat, wrote.
According to investor Cole Smead, Washington D.C. should take note of Buffett’s position on stock buybacks.
“Any politician, regardless of party affiliation, should stand up and take notice of a statement like that,” said Smead of Seattle-based Smead Capital Management.
Buffett, in typical self-deprecating fashion,
Buffett, in typical self-deprecating fashion, claimed that Berkshire’s remarkable record of doubling the returns of the S&P 500 over the last 58 years with him at the helm is the result of “about a dozen truly good decisions – that would be about one every five years.”
He mentioned a few in his letter, but he kept his message — which has long been one of the most widely read business documents — remarkably brief this year, at just over eight pages. He also dedicated an entire page to a tribute to his 99-year-old business partner Charlie Munger.
“I think investors, whether Berkshire investors or just Berkshire students, look to him for more, and I think they may come away wanting more,” CFRA Research analyst Cathy Seifert said.
Buffett emphasized how much Berkshire benefits from dividends from large investments in its portfolio, such as Coca-Cola and American Express, even though he refuses to pay a dividend at the Omaha, Nebraska-based conglomerate he leads because he believes he can generate a higher return for shareholders by investing that cash. Last year, Coke paid Berkshire $704 million in dividends, and American Express paid $302 million, helping to increase the value of those stakes to $25 billion for Coke and $22 billion for American Express. In the 1990s, Berkshire paid $1.3 billion for each investment.
Buffett said the key lesson for investors is that “it takes just a few winners to work wonders. And, yes, starting early and living into your 90s helps.”
Berkshire Hathaway reported a sharp drop in fourth-quarter profit to $18.2 billion from $39.6 billion a year earlier as the paper value of its investments fell.
Berkshire Hathaway reported a sharp drop in fourth-quarter profit
As a result, the value of Berkshire’s sizable stock portfolio distorted those bottom-line figures once more. Because operating earnings exclude derivatives and investments, Buffett believes they are a better measure of Berkshire’s performance. However, Berkshire’s operating earnings fell to $6.7 billion, or $4,584.46 per Class A share, from $7.3 billion, or $4,904.23 per Class A share, the previous year.
This is significantly lower than what Wall Street predicted. FactSet polled three analysts, who predicted Berkshire would report operating earnings per Class A share of $5,305.83 on average.
Analysts said the results were still strong overall, but higher claims costs continued to hurt Geico’s results, while BNSF’s railroad traffic slowed and rising interest rates hurt several of Berkshire’s housing-related businesses, such as its nationwide network of Realtors and its Clayton Homes manufacturing housing unit.
Berkshire’s performance tends to track the performance of the U.S. economy because so many of its dozens of manufacturing, utility, and retail businesses do. The conglomerate is a barometer of the economy in many ways.
Berkshire continues to invest in whole companies and stocks whenever Buffett sees an opportunity. According to Edward Jones analyst Jim Shanahan, he was particularly aggressive last year, making a net investment of approximately $53 billion. Much of that was invested in Occidental Petroleum and Chevron stock and Alleghany Corp. insurance, which was purchased for $11.6 billion last fall.
Despite all of that spending, Berkshire Hathaway’s cash reserves increased to $128.6 billion at the end of the year, up from $109 billion at the end of the third quarter. Berkshire Hathaway’s businesses generate so much cash that it accumulates faster than Buffett can invest.
Berkshire increased its stake in the Pilot Flying J network of 750 truck stops to 80% at the start of this year, up from 38.6% in 2017, which will help this year’s earnings.
SOURCE – (AP)
2023: Wall Street Slumps As Higher Rates Keep Tightening Squeeze
NEW YORK – Stocks are falling on Wall Street on Tuesday due to concerns about upcoming corporate profits and the tightening squeeze of higher interest rates.
The S&P 500 fell 1.3% on the first trading day of the week following Monday’s holiday. As of 10:15 a.m. Eastern time, the Dow Jones Industrial Average was down 489 points, or 1.4%, to 33,337, while the Nasdaq composite was down 1.7%.
Despite reporting a higher-than-expected profit for the last three months of 2022, Home Depot suffered one of the S&P 500′s largest losses. It fell 5.6% on concerns about upcoming earnings after the company issued forecasts that fell short of Wall Street’s expectations.
The retailer said it would spend $1 billion to raise hourly wages in the United States and Canada. This fed broader market concerns that rising company costs were eating into profits, one of the main levers that set stock prices.
Stocks Are Dropping On Wall Street
The other major lever is in jeopardy as interest rates continue to rise. When safe bonds pay higher interest rates, stocks and other investments are more expensive. Rates have risen to the point where Morgan Stanley strategists believe US stocks are more expensive than ever since 2007.
The 10-year Treasury yield, which helps set mortgage and other important loan rates, increased to 3.93% from 3.82% late Friday. The two-year yield, more sensitive to Fed expectations, increased to 4.71% from 4.62%.
Yields have risen this month as Wall Street raises its expectations for how high the Federal Reserve will raise short-term interest rates to reduce high inflation. The Federal Reserve raised its key overnight rate from 4.50% to 4.75%, up from near zero a year ago.
Several economic reports have recently come in that were stronger than expected. On the plus side for markets, they helped allay fears that the economy would soon enter a slump. On the negative side, they give the Fed more reason to stick to its “higher for longer” campaign of raising interest rates to suffocate inflation.
A strong economy could keep inflation under control.
The most recent evidence came from a preliminary report released Tuesday, indicating that business activity is picking up. S&P Global said the services industry likely resumed growth last month and reached an eight-month high. Meanwhile, manufacturing is still contracting, but the reading has reached a four-month high.
Higher interest rates, in addition to dragging down investment prices
Higher interest rates, in addition to dragging down investment prices, slow the economy by making borrowing more expensive and increases the risk of a future recession. As a result, Wall Street’s more pessimistic investors have maintained their recession forecasts but shifted the timing to later in the year.
The Fed stated in December that its typical policymaker expects short-term interest rates to rise to 5.1% by the end of this year, with the first-rate cut occurring in 2024. After previously believing that the Fed would eventually ease up on interest rates, Wall Street has largely agreed with the Fed’s assessment.
The concern is that the Fed will raise its rate forecasts even higher next month when it releases its latest economic projections. Aside from showing that the job market and retail sales have been stronger than expected, recent economic reports have also indicated that inflation is not cooling as quickly and smoothly as hoped.
These concerns have stopped Wall Street’s strong start to the year. After rising as much as 8.9%, the S& P 500 is now only up 4.9% for the year.
International stock markets were mostly down after manufacturing indicators in Europe and Asia painted a mixed picture, and Russian President Vladimir Putin accused Western countries of threatening Russia.
SOURCE – (AP)
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