The Small Balance Intersection Update - November 25, 2024

Did you Know:

Someday is not a day of the week.” — Denise Brennan-Nelson

On November 25, 2003, the Concorde supersonic airplane made its final flight, marking the end of an era for supersonic commercial aviation.

World Day for the Elimination of Violence Against Women: November 25th, recognized annually, marks the start of the 16 Days of Activism Against Gender-Based Violence, ending on December 10th (Human Rights Day).

Small Business Success Ahead

Manufacturing Tops Biz2Credit’s 2024 Small Business Rankings

Biz2Credit’s 2024 Top Small Business Industry Study ranks Manufacturing as the leading industry across key financial metrics, including highest average revenue ($1,211,760), credit score (676), and business age (8.8 years). These gains are attributed to economic stability and federal incentives like the CHIPS Act, boosting domestic production. Healthcare & Social Assistance showed the highest loan approval rate (46%), while Retail Trade captured the highest funding volume (20%) and Information Technology achieved the highest average funding amount ($98,311).

The study analyzed over 90,000 funding applications from 2023, highlighting trends across revenue, credit, and industry maturity. Wholesale Trade and Administrative Support also performed strongly in revenue and funding metrics. Manufacturing's dominance reflects consistent performance bolstered by technology-focused government policies. Meanwhile, high approval rates in healthcare signify a steady demand for services. IT remains a standout with high funding efficiency, suggesting robust investor confidence in digital industries. The report underscores the shifting landscape of small business financing amid economic and policy changes.

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Intersection Ahead

2025: Navigating Economic Shifts in a New Era

Overview: The post-pandemic economic landscape is shifting, with the U.S. entering a period defined by trade policy changes under the Trump administration. Anticipated tariffs could drive inflation and slow GDP growth in 2025, with broader global implications as key economies brace for reduced export demand and heightened economic uncertainty.

1. Tariffs and Inflation: President-elect Trump’s proposed 10% across-the-board tariff, including a 60% levy on Chinese imports, may raise U.S. core inflation by over 1 percentage point and reduce GDP growth by up to 2%. Inflation is forecast to climb to 3% in Q4 2025, delaying the Federal Reserve’s path to its 2% target.
2. GDP Growth Slowdown: U.S. GDP growth is projected to slow to 1.5% in 2025, down from 3% in 2024, as tariffs, restrictive monetary policy, and weakened consumer spending weigh on the economy.
3. Global Impact: Economies with heavy U.S. export reliance, such as Mexico and China, are particularly vulnerable. Global GDP growth is forecast at 2.5%, down from 3% in 2024, reflecting protectionist trade trends and geopolitical uncertainty.
4. Federal Reserve Policy: The Fed is expected to cut rates by 100 basis points in 2025, ending at 3.5%-3.75%, though the pace of easing may be tempered by tariff-driven inflation risks.
5. Tax Policy Shifts: Republican-led Congress is likely to extend the 2017 Tax Cuts and Jobs Act while considering $1 trillion in new tax cuts starting in 2026. However, deficits will remain near 6%-7% of GDP, limiting fiscal flexibility.
6. Housing Market Headwinds: Elevated mortgage rates and affordability challenges are expected to reduce housing starts by 2%-3% in 2025, while tariffs may increase material costs and constrain new construction further.
7. Labor Market Adjustments: Payroll growth is forecast to decelerate to 120,000 jobs per month in 2025, with immigration policy tightening likely to slow labor force expansion further.
8. Monetary Policy Divergence: Foreign central banks, including the European Central Bank and Bank of Canada, are poised for more aggressive rate cuts compared to the Fed, while the Bank of Japan may tighten policy.
9. Global Trade Dynamics: The rise in tariffs is likely to benefit some nations, like India, which may gain from supply chain reallocation, while Mexico and China face significant trade disruptions.
10. Dollar Strength: The U.S. dollar is projected to reach its strongest trade-weighted value in over two decades, driven by favorable interest rate differentials and global risk aversion.

Key Implications: With inflationary pressures, trade uncertainties, and fiscal policies reshaping the economic landscape, businesses and policymakers must prepare for a year of constrained growth and elevated volatility. Optimism for 2026 rests on tax relief, regulatory adjustments, and potential recovery from tariff-induced shocks.

For more details, view the full Wells Fargo report.

Budget Boulevard

Thrifty Millennials Lead Value-Driven Spending Trends

Bank of America’s latest report highlights how middle-income and Millennial consumers are increasingly prioritizing value over premium spending amidst economic pressures. Despite continued month-over-month growth in consumer spending, trading down to less expensive tiers is evident across sectors such as apparel, dining, and groceries. Middle-income households, earning between $50K and $100K annually, have traded down the most due to wage growth lagging inflation by six percentage points since 2019. Millennials, facing rising costs for housing, cars, and childcare, show the largest shift toward value spending, a reversal from 2022 when they led in premium expenditures.

The spending tier composite (STC), a measure of consumer spending at value, standard, or premium tiers, has declined to levels below pre-pandemic norms, reflecting an overall increase in budget-conscious behavior. While low-income households remain steady in value-focused habits, high-income households have been less affected due to greater financial buffers. Millennials’ steep decline in premium spending is noteworthy, despite their wages growing faster than inflation since 2019, signaling economic strain from lifestyle and cost-of-living adjustments.

This trend suggests that many consumers are trading down to maintain spending on essentials and experiences like travel, although some are choosing to forego these expenses altogether. Middle-income earners, lacking substantial financial cushions, continue to feel squeezed as inflation outpaces their wage growth. With these shifts, the data underscores the broader impact of inflation and cost pressures on consumer spending patterns, particularly among middle-income and younger generations.

Read the full report here.

Optimism Outlook

Renting Outpaces Buying in Key U.S. Markets"

The analysis reveals that renting is increasingly outpacing home buying in 47 of the 75 largest U.S. metros, as affordability challenges have intensified due to rising home prices, mortgage rates, and associated costs. Toledo, Cape Coral, and Minneapolis saw the largest growth in rental share year-over-year, with Toledo leading at +8.7 percentage points. High-rent markets like San Jose (52% rentership), Los Angeles (50.8%), and New York City (49.1%) remain dominant, reflecting long-standing affordability constraints.

Lower-cost areas such as Cape Coral and Jacksonville have seen renter growth due to surging insurance premiums and HOA fees. While population growth supports both renters and homeowners, regions where renter household formation significantly outpaces ownership suggest a decline in affordability. Investors are advised to monitor these shifts, as higher rental shares in growing metros indicate opportunities in multifamily and rental-focused investments.

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