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What’s Driving Business Thinking Now? An Economist’s Take on Tariffs, Rates, and Labor
79 Plays1 day ago
Economic headlines can be noisy—but the data tells a clearer story.
Join NCMM’s Doug Farren and Wells Fargo economist Jackie Benson as they connect Q4 2025 Middle Market Indicator results with national economic trends. The discussion covers how middle market companies are navigating tariffs and labor force constraints, why growth has remained resilient, and what business leaders should keep an eye on as interest rates and policy dynamics evolve in 2026.
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Transcript
Introduction to the Podcast
00:00:02
Speaker
Welcome to the market that moves America, a podcast from the national center for the middle market. The center is the leading source of knowledge, leadership, and innovative research on the middle market economy throughout our podcasts. We will feature middle market leaders and stakeholders to hear their real world perspectives on trends and emerging issues.
Middle Market Indicator Report Insights
00:00:24
Speaker
Welcome to the market that moves America podcast, where today's episode features a discussion with Jackie Benson. Wells Fargo economists supporting commercial banking.
00:00:35
Speaker
My name is Doug Farron, Executive Director of the National Center for the Middle Market, located at The Ohio State unit University Fisher College of Business.
Guest Background: Jackie Benson
00:00:44
Speaker
And excited about today's episode, we're gonna discuss some of the findings of our latest Middle Market Indicator Report and how those insights on US Middle Market companies stack up against some of the broader economic data that Jackie and her colleagues track within ah within the bank. So Jackie, welcome welcome to our podcast.
00:01:09
Speaker
Thank you so much. It's great to be here. So um we always start with just our guests telling us you know a little bit about yourself, your background, and your current role with Wells Fargo.
00:01:21
Speaker
So I am an economist with Wells Fargo. What that means is that We're basically researchers and we analyze all of the economic data that comes in on a a daily basis. So you can think about um consumer spending, business investment, construction. um We keep a very close eye on that. And we write a lot of reports um discussing those trends. And we also produce a forecast.
00:01:47
Speaker
about where we see things headed over the next few years. But a little bit about my background, i was born and raised in Florida and then I spent seven years working in Washington, DC. um Now I live in Charlotte, North Carolina, which is great, except for the snowstorm we just had.
00:02:07
Speaker
Not a fan of that. yeah Yeah, I think we're all kind of done with winter in most parts of the country. um How big is the team that you work on? it is Is it a fairly large group of economists? It's about 15 people, 14 to 15 people. We're split between New York and Charlotte.
00:02:24
Speaker
Okay, got it.
Middle Market vs National Economic Trends
00:02:26
Speaker
So um I guess my first question, you've seen some of the data that we track. So the you know the middle market indicator now, we're 14 full years of you know tracking several different things from midsize companies. We kind of look at some of their performance from a,
00:02:42
Speaker
ah revenue and employment growth rate. We look at some of the challenges and confidence and you where they're investing capital. And then obviously some of the you know current issues like AI, talent, tariffs, and so forth.
00:02:56
Speaker
um How does that stack up against maybe some of the broader economic data that you look at? So I reviewed kind of the results of the survey and a lot of it was spot on with the broader national trends we're seeing. It seems as if companies were fairly constructive on their growth outlooks ah from a revenue standpoint. And when you look at the broader economy, the equivalent there is really GDP growth. and It's how fast domestic economic outlook increases.
00:03:28
Speaker
When GDP growth is higher, it means businesses are hiring and investing and consumers are spending, etc. And what we've seen is surprisingly strong economic growth. um kind of starting in Q2 of this year.
00:03:43
Speaker
Of course, we don't expect that to stay at the same pace. But, you know, despite all of the headwinds that you've heard, um you know, tariffs being maybe the largest, that hasn't dealt a huge blow to economic growth, which is a good thing. So from that perspective, the data aligns. It's spot on.
00:04:04
Speaker
Yeah, so it kind of goes against what was expected, right? Like these shocks and uncertainty and headwinds really would have created a projection of a more muted growth environment, but it sounds like that hasn't been the case.
00:04:18
Speaker
That's true, but what I would argue is that growth has been resilient despite these headwinds, not because of them. So even though we have extraordinarily high tariffs, you know, there's no longer a huge increase of them rising substantially in our view. And businesses were able to mitigate a lot of those challenges, you know, economy-wide profit margins are elevated and and businesses took on those tariff costs themselves um as opposed to passing them on completely to their customers.
00:04:51
Speaker
Right. Got
Wells Fargo Economic Reports Overview
00:04:52
Speaker
it. So you mentioned in the intro that your team produces reports um that help support the commercial bank team. Can you give us maybe a little detail on what that what that looks like or maybe some insights and how the bankers then use that information as they're having discussions with their middle market clients and prospects?
00:05:16
Speaker
So, yeah, I mean, both internal bankers and clients of Wells Fargo, they're always interested in our outlook and our expectation for consumer spending, for construction for investment more than anything i find they're interested in our uh rate outlook so where we think interest rates are going um and every month we publish a broad economic outlook with an interest rate forecast included ah just uh for curiosity's sake ah if you're interested we're currently expecting two rate cuts this year um for a total of 50 basis points by June. So that would bring the Federal Reserve's interest rate um from its current level of 3.75% down to 3.25%. And we think the balance of risk is pretty ah fair on both sides for that expectation. oh And that would be the lowest rate since when? Pre-pandemic?
00:06:18
Speaker
So interest rates did start rising in 2019 before the pandemic, but they they were at zero for so long, you know, after we had that global shock. So ah it's not quite back down to zero, but it's more or less three and a quarter by our view is more or less in line with the neutral interest rate, which is a fancy economic term that basically means an interest rate that neither discourages nor encourages economic activity.
00:06:45
Speaker
Yeah, right. Yeah, that's that's interesting. you know i I mentioned we launched in 2011, and then we've been tracking this indicator data since the spring of 2012. And so we've got this very you know big longitudinal data set.
00:07:00
Speaker
And I wanted to ask you why you know having that trend data is so important when you look can look back for things like you know certain patterns or understanding where there have been shocks and then what that has meant.
00:07:13
Speaker
kind of yeah Tell us a little bit about how you Think about that in terms of like historical and or trend information.
Importance of Longitudinal Data in Economics
00:07:21
Speaker
Now you're getting nerdy, so I love it. um So as an economist, specifically a macro economist, I love time series. And the more time series, the better because context is everything. um A, you need a good time series in order to run proper analysis. B, you need a good time series in order to distinguish like signal from noise. So, it's a good way to gauge whether a particular variable is largely outside of its norm or if it's kind of just wiggling around like macro variables tend to do. Without a long history, you really don't have much to go on. um So I'd argue it's necessary. Right.
00:08:06
Speaker
Yeah. Now that aligns well with our views as well. So let's talk a little bit about some of our latest results. We just released... our year-end middle market indicator. And, you know, we were um our last version in the summer, our mid-year report, we definitely saw more muted growth results.
00:08:25
Speaker
Both revenue growth and employment growth across the middle market were down, you know, several percentage points from where they had been trending over
Economic Resilience and Challenges
00:08:33
Speaker
the last three to four years. so We attributed that to but you know basically talking to owners and CEOs. They're just telling us that we're there's just so much uncertainty out there. We can't plan effectively. We don't know where our costs are headed. We haven't made a decision about whether we're going to pass these costs on or we're going to eat them and supply chains are all messy. So fortunately, we saw that bounce back a bit here at the year end growth you know from a top end over 10%.
00:09:02
Speaker
although hiring still a little bit muted. And i think I just saw a jobs report recently, maybe earlier this week, where you know layoffs are kind of at their highest in a long time. So what are you kind of seeing from the national perspective in terms of US economic performance here as we are at the start of the year?
00:09:22
Speaker
So there's a lot of dichotomies going on. you know I started out talking about how resilient economic growth has been, a lot of that can be attributed to um ai and the data center build out and um these forces that kind of mask the underlying dynamics for maybe smaller, medium sized firms.
00:09:43
Speaker
um When it comes to hiring, the labor market has crawled, it slowed to a crawl. We had hiring, um if you look at like a monthly average, At the first quarter of 2025, the US economy was adding 100,000 or more jobs per month. ah Now, if you kind of strip out volatility associated with the federal government, we're about 20 or 30,000 jobs per month. um And that's even weaker when compared to before the pandemic when we were about 160,000 So so what you have is companies, um
00:10:23
Speaker
with firm growth happening from like a capital expenditure standpoint related to high tech, and yet they're not hiring. And how you explain that, because it's very abnormal. Usually you have strong economic growth and strong hiring along with it.
00:10:39
Speaker
How you explain that is increased labor productivity. So labor productivity this cycle, since the pandemic, is you know pretty higher than it was during the last cycle. Not quite um at the level of of kind of the dot-com innovation in the early 2000s, but it's certainly increased on balance.
00:11:03
Speaker
Are there any contribution, I would say, are there is there an impact from the labor pool itself in terms of the demographics, right? Like participation.
00:11:14
Speaker
i think one thing that we've heard, you know, kind of, um, uh, just in conversations, there are a lot of baby boomers who are getting ready to retire or are retiring. you know, clearly we've got some policy things going on with the government as well, but does that contribute to this issue too? Just the pool of labor that's
Labor Force Growth Issues
00:11:35
Speaker
available?
00:11:35
Speaker
It does. So I'd say our current labor market challenges are both on the supply and the demand side. So I talked about the demand side a little bit. You have higher costs from tariffs and just inflation kind of causing businesses to think twice about adding more payroll. And then on the supply side, you have pretty stagnant labor force growth. Labor force, by depending on the measure, is essentially flat, not growing anymore. And um that is partly driven by aging population and retiring baby boomers. It's also driven by slower foreign-born workers, join but um entry of foreign-born workers to the labor force. And in a lot of places you see a net decline in foreign born workers. Um, so it's actually a drag on labor supply. So it kind of depends on who you talk to. um some businesses have job openings they can't fill because they can't find the workers, especially in construction and manufacturing. Um, some businesses, ah are reducing hiring from their standpoint to reduce costs.
00:12:46
Speaker
Okay. Uh, I want to talk a little bit about kind of expansionary plans, because one of the things we ask our middle market survey respondents is on, you know, some of the steps they take to drive the growth of the business. And usually what we see at the top of that list ah would be things like introducing new products or services or thinking about expanding into new, primarily for the middle market, it's domestic expansion, much less so international expansion.
00:13:16
Speaker
And then things like adding facilities, right? Like warehouses, data centers, all those types of things. And then you mentioned, you know, the expectations around rate cuts and maybe more favorable rates. But what does all that say about the capital demands and credit and things that are going to help support? Because these businesses need the funding to drive those activities, right? What what do you see from that standpoint?
Impact of High Interest Rates on Investment
00:13:40
Speaker
So um there's a lot there. There's a lot to talk about. First, just from an uncertainty standpoint, um uncertainty is still elevated. um Whether that is due to domestic policy changes, things like trade and immigration, or due to geopolitical tension, which is certainly on display right now. um Overall uncertainty is a factor kind of suppressing investment. um Also, you have just higher interest rates, yes, they've come down and we expect them to come down more. But when you talk about warehouses and commercial real estate, that was one of the hardest hit sectors um from the Fed's monetary tightening. And basically what you saw is c r re construction kind of boomed coming out of the pandemic when interest rates were zero. um And then when interest rates started rising,
00:14:34
Speaker
new construction starts plummeting. So they're no longer falling, but they're much weaker than they have been. And that's you know a big component into investment.
00:14:45
Speaker
Okay. I do want to touch on, you mentioned AI and technology in general. It's it's such a huge theme right now across all the business landscape. And you know one of the things that we're hearing pretty consistently is business leaders saying, yeah, this is here. It's here to stay. Like, I know I need to think about it and how I can implement it. But a lot of times they don't know how to necessarily measure it in terms of, is it successful? What kind of ah ROI am I getting? You mentioned labor productivity. Like, okay, if I'm going to replace people with a i what does that mean from a productivity standpoint and and cost to my business? So what are you seeing like across just the
00:15:27
Speaker
technology or even more specifically, like, AI landscape? So, firstly, there has been a shift in business investment. um Before the pandemic, you had ah the percentage of business fixed investment going to high-tech categories like semiconductors or um telecommunications equipment, computers, et cetera. That percentage was you know around 40%, maybe a little higher.
00:15:57
Speaker
After the pandemic, now it's over 60%. So it's actually overtaken your traditional investment categories of like property plan equipment.
00:16:10
Speaker
um I'd say that's because AI is viewed as a very safe bet right now from an investment standpoint and as a growth area. In terms of measuring productivity, so I said, yes, we have higher productivity this cycle, and a lot of people are quick to attribute that to AI.
00:16:27
Speaker
It's too early to be able to causally establish that. But I'm sure that these, you know, technological advancements are having some um positive productivity effects, just talking to people in their day-to-day work.
00:16:45
Speaker
How do you measure productivity? Like as a business owner, that's hard. I'm not a business owner. I'm a researcher. What I would say is output per hour or output per worker. Like that's the formula for productivity. So that's how I would measure it.
AI's Role in Business Investment and Productivity
00:16:58
Speaker
Yeah. Many of them tell us like they think about tasks that are just very repetitive and that people hate doing. And that's where they're starting with their AI implementation, which may you know makes a ton of sense.
00:17:11
Speaker
um I'm going to put you on the spot a little bit with tariffs and trades. So that you know You mentioned at the beginning, that was the big shock from last year where you know companies were kind of hit with this um that the policy changes that they had to kind of think about and adapt to.
00:17:25
Speaker
We saw it kind of you know cool down a bit, I would say, toward the end of the year. But you know what are some of the big things that companies should be looking out for ah in 2026 when it comes to tariffs?
00:17:38
Speaker
So, of course, um we can't predict the future. And Tariffs are an area that the administration has a lot of like singular control over. You don't need Congress. um So because of that, it's almost impossible to predict where they're going to go.
00:17:56
Speaker
That said, our house view is that the current tariff level is likely gonna stay where it's at or even come down a little bit. um And that's because of a few reasons. First, the administration, the president has been vocal about affordability, prioritizing affordability. You've seen that with some of the um housing policy announcements that he made, but it's kind of across the board, affordability is a ah focal point.
00:18:27
Speaker
Along with that, he they did roll back some tariffs on consumer goods and groceries, for example. So that that's an example, probably not willing to to raise them too much further um and stoke inflation. And then also you have a Supreme Court case, which we should have a decision any day now. I'd expect it within the next month, but it'll certainly be um in the first half of this year.
00:18:52
Speaker
and if the Supreme Court rules that these emergency tariffs are illegal, you know, that would, i wouldn't say it's going to bring the tariff rate down because there's other legal mechanisms that the administration can use to bring it right back up. And I'm sure they would.
00:19:08
Speaker
But it just it gives more kind of evidence that tariffs probably aren't going to move drastically higher than they are today. Now, I'm not disregarding tariff threats on Canada and and these countries. And um that's going to be a source of volatility and uncertainty for some
Future Tariff Levels and Legal Implications
00:19:26
Speaker
time. Just our base case is that the current tariff rate is is probably where it's going to stay. Okay, great.
00:19:33
Speaker
So as we wrap up here, my my last kind of question I wanted to to put out there for you was, you know, with all this information, like I think sometimes people just get overwhelmed with information. And as we go through the balance of this year, you know, for businesses in particular, what do you think some of the key things that they should kind of keep their eye on, whether it's, you know rate cuts, certainly that'll be important. But what what are some of the, you know big takeaways for our audience to think about in terms of Things they really need to be paying attention to that might you know most drastically impact their business or some of the decision making they need to make.
Critical Economic Areas for Business Monitoring
00:20:11
Speaker
So interest rates are a big one. um And especially since we are going to have a new Fed chair um whose first meeting will be in June. Kevin Warsh is going to be replacing Jerome Powell. So um I definitely keep an eye on that. And then along with that, first I'll answer from like an economist perspective. The main star in um econ world really is the labor market right now because it is changing and it and it is, you know, is it going to stabilize or is it going to weaken further? Is it going to improve? And that that's really the topic I think that deserves a lot of attention alongside inflation. How sticky will inflation be? um We think it's going be pretty firm, but kind of in the second half of this year, it can start coming down a little bit after these a tariff pass through is fully worked into the economy.
00:21:05
Speaker
So those are the main ones from my standpoint, but of course, I'm not a business owner. um I think credit conditions are going to evolve and that's something to keep an eye on as well.
00:21:16
Speaker
Okay. Wonderful. Well, I know I certainly learned a lot. This is interesting for me personally, but I think our Our audiences are going to get quite a bit out of this. so I appreciate your time and sharing these insights with with us today.
00:21:33
Speaker
Yes, it was an absolute pleasure. And I hope this was informative, if not entertaining. Yeah, absolutely.
Closing Remarks and Call to Action
00:21:40
Speaker
Well, thanks, everybody. For more information, if you want to access our middle market indicator data, you can visit our site, middlemarketcenter.org.
00:21:50
Speaker
And we will talk to you again soon. Thanks. Thank you for listening to The Market That Moves America. Never miss a new episode by subscribing anywhere podcasts can be found. You can also subscribe to our email newsletter at middlemarketcenter.org.