Running On Empty

The American consumer is broke. Michigan’s middle-market companies must power the economy forward.
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We’re deep into yet another heated U.S. presidential election season, and the classic campaign slogan, “It’s the economy, stupid,” is more relevant than ever.

But here’s the thing: When politicians talk about the economy, they’re really talking about the American consumer. After all, domestic spending drives a staggering 70 percent of our GDP.

So let’s be more concise: “It’s the American consumer, idiot.”

The past four years have seen historic job numbers and wage gains. Recently released GDP numbers from the second quarter handily beat expectations, leading many economists to declare that we’re in a “Goldilocks” economy.

Yet Main Street tells a more nuanced story. With interest rates at 20-year highs and inflation’s lingering effects, kitchen table economics have never been more complex for everyday Americans.

In reality, our economy is on a tightrope, and Michigan’s middle market — companies with annual revenue between $10 million and $1 billion — isn’t just a safety net; it’s the driving force behind our region’s prosperity. In this intense election cycle, candidates must embrace this truth: The American consumer is running on empty, and it’s the middle market that holds the key to powering our economy forward.

Since February 2020, U.S. prices have surged by 20.8 percent, and 6 percent of the items tracked by the Bureau of Labor Statistics are actually cheaper today. Wage growth has slowed to its lowest rate since early 2020. More Americans are working multiple jobs, not in pursuit of the American Dream, but just to make ends meet.

Credit card debt has reached a record $1.1 trillion, up 12 percent in just the past year. Interest rates on these cards have nearly doubled since 2013, hitting an average of 24.7 percent. More than one in 10 Americans are more than 90 days behind on their credit card payments — the highest delinquency rate since the Federal Reserve started tracking such data in 2012.

Put simply, Americans are broke. Look no further than McDonald’s, which just reported its first same-store sales drop since 2020. Luxury brands Burberry and Gucci recently saw sales plummet by 20 percent, while Starbucks saw sales declines and Walmart’s latest earnings revealed a noticeable shift away from discretionary spending.

Wall Street is taking notice and tightening belts. Deere & Co. cut 6 percent of its salaried workforce in July. Closer to home, Stellantis is trimming U.S. jobs through buyouts and layoffs, while Benton Harbor-based Whirlpool is reducing its workforce by 2 percent due to weak appliance sales. Even tech giants like Amazon, IBM, Google, and Tesla — once deemed invulnerable — have announced layoffs.

While unemployment hovers at a seemingly healthy 4.1 percent, the Bureau of Labor Statistics revealed that of the 206,000 new jobs added in June, a staggering 75 percent were concentrated in just two sectors: government and health care. Excluding the pandemic plunge, forward hiring has weakened to its slowest pace in a decade.

Amid this challenging economic backdrop, America’s middle-market companies continue to grow. These mid-sized powerhouses represent 1 percent of U.S. businesses, yet they contribute more than one-third of our GDP and employ 48 million Americans.

In Michigan, the middle market’s impact is profound. These companies employ nearly 30 percent of southeast Michigan’s workforce, forming the cornerstone of our local economy. Since the Great Recession, they’ve driven over half of the nation’s job growth.

While corporate giants stumble, Michigan’s middle market stands firm. The Golub Capital Middle Market Report recently revealed an impressive 11 percent earnings growth and 5 percent revenue growth in early 2024. The RSM Middle Market Business Index paints an equally encouraging picture: 57 percent of these firms are boosting worker compensation, and 44 percent are expanding their workforce.

Yet, these vital job creators are not bulletproof. The latest findings from the National Center for the Middle Market reveal mid-sized companies are grappling with increasing costs, persistent skilled labor shortages, regulatory requirements, and a rapidly tightening credit market following the collapse of Silicon Valley Bank.

Policymakers and candidates need to recognize the outsized impact of these entrepreneurs and focus on reinforcing and revitalizing both the middle market and the American consumer. Policymakers should prioritize three key areas:

Federal Reserve Rate Loosening:

In light of current economic conditions, the Fed must lower interest rates and ease capital constraints on banks. Lower borrowing costs and easier access to credit will spur investment, expansion, and job creation.

Enhanced Skilled Worker Training:

Michigan must double down on workforce development programs tailored to middle-market needs, including expanded apprenticeship programs and innovative partnerships with community colleges.

Government Advocacy and Support:

Private-sector job growth must be a priority for lawmakers. Strategic tax incentives and reduced regulatory burdens will help drive this forward.

Michigan’s journey from 14 percent unemployment in 2009 to a multi-decade low of 3.6 percent last year showcased the extraordinary hiring power of our middle market. In a consumer-constrained economy, we can’t afford to let this progress slip away. As campaign buses roll through our state, here’s a smarter campaign slogan for our politicians to consider: “Power the Middle, Move the Nation.”

In Michigan, that just might be a winning ticket to the White House.