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Nich Tremper: [00:00:00] In the summer of 2020, we saw the number of new business applications just skyrocket, and as of June 2025, the number of new businesses were still 57% higher than June 2019. I'm using, you know those times to get a good pre pandemic post pandemic period. There's really been an entrepreneurship renaissance in the United States, and one of the reasons that the economy has been so resilient is because these new businesses have been bringing creative ideas to market and things like that.

Blake Oliver: [00:00:33] Are you an accountant with a continuing education requirement? You can earn free Nasba approved CPE for listening to this episode. Just visit earmarked in your web browser, take a short quiz and get your certificate. Hey everyone, and welcome back to earmark. I'm your host, Blake Oliver. If you're like most accountants, you're probably fielding more questions from clients about the economy than ever before. Small business owners are looking to us for guidance beyond just compliance work. They want to understand what's happening with tariffs, labor markets and interest rates and how these trends affect their bottom line. Today, I'm joined by Nick Tremper, senior economist at gusto, who has a unique window into the small business economy through data from hundreds of thousands of businesses on Gusto's platform. In the next hour, we'll explore what these macroeconomic trends mean for your clients, how you can better advise them through uncertain times, and why this might be the perfect moment to expand your services beyond traditional compliance work. Nick, thanks for joining me today.

Nich Tremper: [00:01:33] Thanks for having me on, Blake. I'm really excited to talk about small businesses.

Blake Oliver: [00:01:38] So, Nick, let's start with the big picture. How would you characterize the current economic environment for small businesses in mid 2025?

Nich Tremper: [00:01:47] You know, in one sentence, I'd say that small businesses are making the most out of a weird moment, right? They're still serving their customers. They're still meeting the, you know, meeting the demands of their markets. But they're doing this while juggling input costs that are changing, often policy uncertainty that's lingering for longer than any of us would like. You know, the important thing is, is we're not really seeing small businesses contracting. We're not seeing them shut up, close up shop. We're not seeing them lay people off quite yet or any signs of doing that. They're not stopping their core business. But, you know, and I think that we'll talk a little bit about this as we look towards the future a bit, is that they may be delaying growth, delaying growth opportunities. And that's something that that we need to keep an eye on for these folks.

Blake Oliver: [00:02:37] So input costs tariffs. That's what I think of when I think of input costs. What is going on with tariffs. Because I read about these. We've been talking about tariffs for months now ever since the election. And we've had threats of tariffs of over 100% on some countries, China in particular. We haven't seen it happen yet, but we have seen the average tariff across all imports go up to nearly 20%. And that's a big change from the past when it was in the single digits. But like you said, we haven't seen severe economic contraction yet. We haven't seen a lot of inflation yet. Can you give us the economist's perspective on where we're at with the tariffs?

Nich Tremper: [00:03:29] Yeah. Um, you know, I think that when we talk about input costs, tariffs are an important component of that. But we need to remember that tariffs came about after a historic bout of inflation as well. Right. So these are costs that are continuing to change and provide uncertainty for folks when prices are already higher than they remember them being right. So you're exactly right. The the effective tariff rate, which is basically like the weighted average of of the tariffs that are coming that are applied on goods coming into the United States is around 18%. And in a lot of ways, that's probably a level that the economy will be able to handle, right. People won't be happy about it, but the economy is likely going to be able to handle that. The more pressing issue is, is the uncertainty around tariffs, right. Small businesses don't know how to necessarily think about what their costs will be three months from now, six months from now. And that has really important implications if you're a retailer. Right. That matters. On how much how much you're going to order to be able to sell at the holiday season. If you're a general contractor, right, you're trying to fill out your books and fill out your schedule and calendar months in advance. If you give somebody an estimate that you can no longer honor because prices go up, that's that's an issue for you, right? So when when I mentioned in the in the opening question that businesses might be delaying their growth. That's what I'm thinking about, right? Businesses don't know how to bring on and think about what their costs will be in the future, so that they can make plans on hiring that next person, or opening that next location, or, you know, in anything that has to do with what's the next step for me.

Blake Oliver: [00:05:15] So I want to ask you about the tariff rate. You said we're at a weighted average of about 18%, and we haven't so far seen prices increase dramatically. They've gone up a little bit. Right. A few percentage points. But it seems like businesses so far have been able to absorb most of that additional tariff cost without passing too much of it on to consumers, which is kind of the ideal outcome. Actually, it seems like this policy might be working in a sense. How high can these tariffs go without it starting to really impact the economy? Or to put it another way, do you think that this is just delayed? Do you think we're going to see a big impact from this change, going from a few percentage points up to like ten, 15, 20% for a lot of countries? Are we just waiting to find out?

Nich Tremper: [00:06:16] Yeah. So, you know, as I mentioned, the weighted average of the tariff rate is, you know, right around 18%. Um, you know, and I think that, you know, earlier this week, all indications from, from the government is that it's probably going to end up in the 15 to 20% range. So we're probably not looking at effective tariff rates that are much higher than that on average right now. There might be some headline number that comes out about some some country between between the time that we record this and the time that it actually goes live. Right. But on average, we're not expecting expecting much more out of tariffs. Now along your question of okay, so what if what if companies just keep absorbing this cost? You know, I think recent earnings calls among some of the biggest businesses suggests that yeah, businesses are at some level eating this eating this cost. Right. But that's not something that can be sustained forever. Right. So some of these costs are going to have to work their way through the economy and get passed on. So that's that's one thing that we need to keep an eye on. But another thing is that if these if these businesses don't think that they can pass on the costs, right.

Nich Tremper: [00:07:30] A high tariff rate may actually keep goods from hitting the shelves. That's another thing we need to worry about with tariffs. If things are too expensive to actually bring into the country or to sell, then we might just not have access to those goods. So those are the two competing factors that we need to think about. And then finally, you ask the question about what happens with long term or inflation as a result of this. So the most recent inflation numbers suggest that inflation is picking up slightly. Now there's an argument to be made. And I think only time will tell on this is if tariffs are just like a one time hit right. If they're a one time hit the economy is likely to be able to absorb them. And what that means is that companies will increase their prices to account for tariffs. And then the prices will just stay pretty steady or increase at at the 2% level that we we see. That's consistent with a growing economy. If that happens then probably these these tariffs are going to work themselves out and work themselves through the economy. And it'll just become a cost of purchasing goods or a cost of doing business.

Blake Oliver: [00:08:37] At what point do the tariffs start to shut down trade. Like you said goods just aren't available. Small businesses can only absorb so much. Like what is the limit?

Nich Tremper: [00:08:50] Yeah. And, you know, I think it depends on on the specific business we're talking about. Right. I think that for a large business, you know, um, a General Motors can announce that they've had $1 billion loss of profit because of tariffs, and they're going to still be around. Okay. Tomorrow. Right. Um, I think that some of the initial tariff announcements are widely accepted to be above that limit. Right. The 30, the 35%. But through the negotiation process over the last several months, since April, we're seeing tariffs that are probably going to work themselves into the economy. And and you know, they may delay growth. They'll likely slow growth. They make the economy less efficient. But it's not going to grind the economy to a halt.

Blake Oliver: [00:09:33] So basically if we don't see massive increases in tariffs above 20%, then it's not the end of the world.

Nich Tremper: [00:09:49] You're not going to find an economist who says, I love tariffs. Right. Um, but, you know, I think I think that that's I think that that's largely right. I think where tariffs are landing right now, um, are broadly think something that's going to be absorbed into the economy. But I think that there's an opportunity here for small businesses to be thinking about what that means for the future. You know, what does that mean for my business plan? How can I turn to my accountant and start talking about cash flow analysis and scenario planning and really taking those next steps to understand? Okay, well, this seems to be government US government policy, right. So let's let's find ways to mitigate the concern and the risk here.

Blake Oliver: [00:10:28] Um, and we've seen that with businesses moving production from countries that are targeted with potential high tariffs into lower tariff countries, for instance, from China to Vietnam. Um, but I think, like you said, a lot of businesses are holding off on doing anything because there's so much uncertainty around them. Hopefully we'll have an answer this month as we record in early August. Things are still a bit uncertain, but it seems like we're getting more deals.

Nich Tremper: [00:10:58] And so yeah, we're getting more. We're getting more handshake agreements. We're getting a framework for deals that that allow folks to start planning for the future.

Blake Oliver: [00:11:06] Got it. So let's talk about other input costs.

Nich Tremper: [00:11:12] Yeah.

Blake Oliver: [00:11:13] Labor.

Nich Tremper: [00:11:14] Right.

Blake Oliver: [00:11:15] We have seen some news from the Bureau of Labor Statistics about jobs. Specifically, the July jobs report was weaker than expected. Only 73,000 jobs added, which is well below the forecast of 100,000. And what made big news was the big downward revision to May and June, which subtracted 258,000 jobs from previous estimates. Explain this to me in the context of tariffs. Is this is this a consequence of tariffs? What do you think is driving the slower job growth?

Nich Tremper: [00:12:03] Yeah. Um, that that revision I'm not somebody who can whistle. I never learned how to do it, but somehow I let out a low whistle when I got to the revision of that jobs report. Um, back in, you know, back back on Friday. Um, you know, I think that over the last several months, we've been talking a lot about what are the what are the soft indicators of the economy and the hard indicators of the economy. Right. So soft indicators are things like sentiment surveys. Um, the University of Michigan publishes one every month. That gets a lot of news. Um, the NFIB publishes a small business sentiment survey, right. So we've seen historically high uncertainty for businesses over the past several months. Um, and we've also seen optimism drop since its, you know, high in December 2024. So when we look at the labor market and the number of jobs that were created, right, I think what we're seeing is hard data actually catching up with some of that soft data. We're not none of the data is really showing a contracting economy. What we're seeing is a economy that's slowing down, that's starting to idle, that's staying in place.

Nich Tremper: [00:13:14] Right. And that's why in May and June, I think it was um, I can't recall the numbers off the top of my head, but the revisions show between 10 and 15,000 jobs created in each of those months. Um, after revisions. That's basically just an economy. That's that's staying flat. Now, I think that there's like a couple things that we should be thinking about when we when we think about these, these numbers, because the world's different today than it was a year ago or even as it was, you know, six years ago during the first, the first Trump administration. Right. Um, there's been a slowdown in immigration that likely, you know, means that the economy needs to add fewer jobs to stay strong. So a 73,000 number may not be a huge, um, flashing red light. But the trend is that we're seeing overall a slowing economy. And it's these soft indicators or the hard indicators catching up with the soft indicators around sentiment and things like that.

Blake Oliver: [00:14:15] So sentiment is down because of uncertainty. We're all wondering what's going to come next. And so therefore businesses are pulling back on hiring expansion waiting to see what happens. Is that what is going on. Is that the story behind these numbers?

Nich Tremper: [00:14:32] We're seeing, you know, net hiring at small businesses, specifically at gusto. We track this every week. Right. And we see net hiring, which is basically hiring, taking into account people who are terminated from their jobs. Now, that doesn't mean layoffs. That means people who quit voluntarily. That means people who move on to a better opportunity. Um, basically being on track with 2023, 2024 through the first half of this year. So we're seeing folks just continuing this space of stasis, right? They're not making big moves to add to the economy. And that's really what we're seeing in these jobs reports is that that's adding up. So again, like I said, we're not seeing small businesses contract. And the current Labor Department numbers aren't showing an economy that's losing jobs by any means. Right. But we are seeing one that's that's staying pretty steady.

Blake Oliver: [00:15:23] Do you know where the jobs are being added? One of the goals of the tariffs stated goals of the Trump administration is to increase domestic manufacturing. Are we seeing that happen in the numbers.

Nich Tremper: [00:15:37] So for the last several years, um, and this has continued through the first half of 2025, a lot of these jobs are coming from the healthcare industry and social assistance. Right? So these are not necessarily, you know, this is the wide range of healthcare. So it's it's doctors and nurses, but it's also home health aides. Right. We've got an aging population, um, which is true in the United States, but it's also true. True globally and in Europe. And and, you know, South Korea, Japan, we have this aging population that needs a lot of care. So we do see most of this growth happening in in these service sector jobs, which is really a a continuation of the transformation that's been happening in the US economy since the 1990s.

Blake Oliver: [00:16:24] So healthcare is expanding. But I've also heard that there are challenges in healthcare because a lot of workers in healthcare, like Home health aides are immigrants. And so it's creating challenges for that industry because we've got an administration that is wanting to reduce immigration and, um, like, how do these how do we reconcile the the jobs numbers with the immigration policy that our country has now?

Nich Tremper: [00:17:01] Yeah. So with with historical immigration rates to the United States now I'm talking, you know, pre January 2025. You know, we expect to add about 100,000 jobs every month to the economy to basically allow for the absorption of new entrants to the, to the job market, right, new entrants to the labor force. That's people who turn 16 right as they graduate high school, get their college degree. Um, but also accept, you know, the fact that a lot of folks are coming into the United States and the economy needs to grow in order to absorb them. Um, so lower job numbers could just be an indication that, you know, could partially be explained as an indication that the economy just doesn't have to add as many new jobs because there are fewer, um, immigrants coming to the United States now, longer term labor intensive sectors, hospitality, home health aides, health care generally are likely to grow more slowly. This is limiting growth opportunities for these businesses that come into the, you know, that are in the economy or new businesses that are looking to start.

Blake Oliver: [00:18:11] Yeah. So if I'm, um, advising clients in hospitality or in construction, they're going to be very concerned about the labor market and especially how immigration affects it, because they're going to have a lot fewer workers.

Nich Tremper: [00:18:29] That that that's right. So, you know, I think that one, you A guiding principle that I have as an economist is that statistics don't mean anything to the individual, right? You marry your own experience in the world with what's going on in your, you know, in, in your life. Um, and I think that there are specific industries that, that are likely to be more exposed. Right. And as of as of right now, you know, we're we're seeing we're seeing a mixed story on these labor intensive industries, right. Home healthcare, healthcare generally are continuing to add jobs. We see construction start to slowly decline. Um, the number of jobs that they have available. Um, but the real the real story and the thing that I think we really, you know, need to be thinking about and that I would be advising businesses that are in these services sectors to think about is what's your long term plan, right. If you aren't able to access the labor that you need to, what does that mean to both your cash flow? What does that mean to how you bid on bid on contracts and also what you just accept as possible, as as possible work for yourself to do right. You may not be able to to work on that fourth development. You may have to have to stop at the three, um, that could have have longer term implications for the economy. If somebody wants to do more work but isn't able to, that's that's not great. But, um, you know, I think from the small businesses perspective and, and the accountants perspective, right. Having those conversations now about implications for, for your clients and for yourselves with your accountants is really important. Um.

Blake Oliver: [00:20:13] So it tighter labor market seems inevitable, both in the short term and the long term. We've got an aging population. We've got lower workforce participation. As a result, we've got less immigration. So us small businesses can expect a tighter labor market going forward. Pretty much across the board, it seems. So my question is, do you have any insights for small businesses, for their accountants as to how they can retain attract employees when there's more competition than ever for their talent?

Nich Tremper: [00:20:55] Yeah. You know, one of the things that we've seen over the past six months is and this is probably good news for small businesses, right? Is that wage growth has has moderated quite a bit from its recent highs in the last couple of years. Right. So small businesses are able to really budget around wage growth and what that means for their labor. Um, a lot, a lot more. Um, this is this is something that we see consistently over the last several months within our data. Um, you know, for those businesses that are that are looking to retain their talent, you know, at gusto, we we've done a lot of research on what does it what could what strategies actually end up working. And we've we've found a couple. The first one is you know if you're able offering healthcare benefits leads to decreased retention rates or increased retention rates of about 40% in the first year that employee is on board, right? So having healthcare is an opportunity here for a lot of small businesses. Um, we see similar effects of offering retirement plans. These are, you know, traditionally 401 (K). But if you, you know, depending on your industry, talk with somebody to figure out what works best for your employees. Um, and one of the really important things that I think about when it comes to retirement is last year we did what we call the State of Small Business Survey. And one of the things that we found is that half of folks who have who who offer retirement benefits to their employees actually don't do any sort of company match. So just by offering this benefit, you're able to get a lot of a lot of the benefit of doing so. When it comes from retention, but you're able to do it at a lower cost way.

Blake Oliver: [00:22:37] What about AI, artificial intelligence? There's all this promise of automating a lot of the work that we do, so we could be more productive without having to necessarily hire more people. What are you seeing in that regard in the data?

Nich Tremper: [00:22:51] Yeah. So, you know, I think a lot of folks hear about AI coming into the workforce and their first instinct is to be nervous. But what we found, we recently ran a survey talking to small businesses who use AI. And what we found is that 95% of small businesses actually aren't cutting back their their labor force. They're not letting people go. They're not reducing headcount. Right. I don't know, I keep saying it in the same way, but like that's how important and exciting this finding is to us, right? Um, what we actually see them doing is Marrying their employees expertise that like human understanding the human, the human expertise about what's going on with within their job and within their industry, with the efficiency gains of AI. Right. So rather than an AI doing somebody's job, what the person's doing is they're like, okay, well, I'm the expert and you're going to be a teammate and you're going to just help me accomplish this more quickly. A lot of businesses are using AI for things like summarizing information, doing market research. Some of the stuff that is just kind of things that you have to do, um, as, as a business owner. Right. But it's providing really a great opportunity to increase productivity by 20% or more, right? 80% of small businesses that use AI have increased their their productivity by 20% or more, according to the survey that they told us about.

Blake Oliver: [00:24:21] That's a huge number.

Nich Tremper: [00:24:23] Yeah.

Blake Oliver: [00:24:23] I mean, 20% productivity gains. And it's only been a few years since these tools have become available. It's kind of I guess I use these tools all the time in my business. And so every time there's a model upgrade, I, I have that moment of fear where I think, when is the AI going to just do this job that I'm doing? When is it going to replace me or when am I not going to have to ever hire anyone again? When are we going to have those billion dollar companies of one person? But it seems like that's actually kind of far away, because when I do use the tools, I find it can't actually replace a person. It can help a person do their job better. But I haven't seen these AI agents that we've been promised that actually replace a full time employee yet.

Nich Tremper: [00:25:19] Yeah. And, you know, we're seeing small businesses that have the most success with I are acknowledging exactly what what you've noticed in your business, Blake, is that these folks are coming up with a plan on how they're going to implement AI, when they're going to use, you know, human knowledge and human expertise versus when they're going to benefit from the benefit from the efficiency gains. Um, and that really helps these small businesses implement and really, um, take advantage of, of the high productivity gains and really the strength that the increased efficiency that AI can offer. And, you know, I think that one of the really interesting things and we've done a couple research projects on AI over the last year or so, um, that that I found in a, in a survey I ran last year, was that businesses that actually use AI reported 45% less likelihood of having difficulty hiring employees last year, right? So employees are looking for the opportunity to really focus on the thing that they're trained to do, that they love doing that. That really brings value to the business and outsource. I outsource other tasks to to I where it makes sense. And small businesses have that ability to really be an employer of of choice, right, because they have the flexibility to really embrace these technologies.

Blake Oliver: [00:26:45] So the lesson it sounds like, is we've got a tighter labor market. We're going to have one for a while. It seems like, if not for the rest of our generation. And there's a couple of solutions here, right? One is offer better benefits, make our small businesses better places to work through healthcare, uh, retirement, matching, that sort of thing, give the benefits that maybe small businesses couldn't offer before and then also give employees tools, AI tools to make them more productive, which they also enjoy. Because who wants to do the boring work?

Nich Tremper: [00:27:30] Yeah. You know, and and not only does it make them more productive, right, but it makes their performance better. Small businesses that allow their employees to use AI. The employees love it because they're able to to optimize and increase their own efficiency. But it's actually turning out better, better work product too. And it and it's making the business stronger as well.

Blake Oliver: [00:27:52] You did a benefit survey. Yeah. And let's talk about that. I mean, you've mentioned some of this data already. Um, one point in the survey that surprised me is that 50% of small businesses don't know if their accountant offers benefits guidance. That seems like a lot.

Nich Tremper: [00:28:10] Yeah.

Blake Oliver: [00:28:11] Why do you think that communication gap is happening?

Nich Tremper: [00:28:15] So we actually for those folks who asked who said that they don't know, right? If their accountant offers this benefits, we ask them why they don't know. And two thirds of them said that they just never asked it. Never thought of of something that they should ask their accountant if this is a service that they provide, which to me, this suggests a really great opportunity for accountants. You know, we talk to small businesses all the time, and they're experts in in their craft or their service or whatever they're bringing to the market. But when it comes to running a business, what they need to do, a lot of times they don't know what they don't know. But accountants know their clients well. They know their their clients industries well. And and letting them know about services you offer isn't like being pushy or making a hard sell, right? It's providing value to your customers because we see that, you know, for folks who receive this guidance, 60% said that it influenced their decision on whether or not to offer benefits or what type of benefits to offer. And 85% of businesses younger than two years said the same thing. So this this is highly valuable information that small businesses would be would be very interested in knowing if you offer this service.

Blake Oliver: [00:29:32] And they just don't know. They don't know that their accountant can advise them on benefits.

Nich Tremper: [00:29:36] They don't know and they don't think to ask, which is why it's so important to just let folks know. If you're if you've got a client who's talking to you about increasing their headcount, right. They want to add W2 employees, letting them know that you offer a benefit guidance service if you do, is is very useful information and incredibly valuable to them because they may not think to ask you about this.

Blake Oliver: [00:30:01] What are you seeing in terms of small businesses hiring offshore employees or contractors? I know that gusto has features that allow you to do that now. Are you seeing an increase in that kind of hiring of folks in the Philippines or India. I know a lot of accounting firms are doing this. This has been a trend that's been accelerating for decades now. And now it seems like every firm is looking into this or the majority of them are. What about businesses in general?

Nich Tremper: [00:30:31] Yeah. So small businesses are we've seen an increase in contractor use overall since probably around the pandemic. Right. So I think during the pandemic. Right. A lot of folks reevaluated their place and how they think about work and how they want to how they want to work. Right. And a lot of these folks just started hanging up shingles and becoming freelancers that are contracting for other companies doing temporary jobs. They're not full time employees, and it gives them quite a bit of flexibility. We've seen an increase. Um, I'm trying to do arithmetic in my head right now, and that's always that's always a pain. Right? But like, never.

Blake Oliver: [00:31:14] Never do it. It's my one rule is I have to have a spreadsheet open. If I'm going to do any calculations, I can't do it in my head.

Nich Tremper: [00:31:20] You know, I get paid to do math all day, but I can't do it in my head. Uh, but, um, you know, I think, you know, we saw among small businesses, contractor use going from about one contractor per six employees to about one contractor per form per four employees. Among those that use contractors. Right. So we've seen this increase, um, and individual international contractors provide quite a bit of flexibility and opportunity for small businesses to, to manage costs to, to get work to, to reach experts that aren't in their specific geographic area. Right. Um, so we have seen increases in this, um, and think that it's, you know, it's an opportunity for small businesses as they're making their, their labor strategy and they're thinking about overall cost management as, as they move forward into the rest of the year.

Blake Oliver: [00:32:15] Yeah, it can make a big difference in a service business. I mean, we see cost reductions or I guess I don't know what the word is, but it's can be 30 to 50% or more cheaper, right, to hire offshore versus onshore when it comes to jobs that can be done remotely. Yeah. Um. Let's talk about inflation.

Nich Tremper: [00:32:40] Sure.

Blake Oliver: [00:32:41] So the big question is if and when the fed will cut interest rates. That's I think, the number one question that every economist probably gets asked. Right. I mean, is that is that right, Nick?

Nich Tremper: [00:32:58] Yeah, I think so. Um, you know, I shoved my crystal ball into this closet that you see behind me before we, um, got on the call. So I'm not I'm not sure I'm going to be, like, best prepared, but we can. We can definitely talk about interest rates.

Blake Oliver: [00:33:10] Don't worry. This isn't NPR, so I'm not going to obsess about it. But, um, I guess, you know, my, my, my question in general is like what insights you do have about inflation. So, um, because this this impacts small businesses in particular, uh, the fed rate, right, when it comes to borrowing costs, uh, if the rates go down, it's a lot easier to borrow money and easier to expand. If rates stay high or relatively high, then it's a lot harder to do that. So I look at the macroeconomic perspective from my position as a CPA, and I just find it hard to believe that rates are going to go down substantially anytime soon, given the increased costs of tariffs, which then show up in consumer prices down the road. And we've we've seen that a bit. We've got less labor due to a combination of an aging population and immigration policy. And that drives up input costs for labor which then leads to higher prices. So, do you see us? You know, I'm not asking you to predict rate cuts this year, but I guess bigger picture long term. Do you see rates staying relatively high for a long time, or do you see us ever getting back to those really low interest rates of what was it? I mean, people were getting mortgages for, you know, two, 3%.

Nich Tremper: [00:34:38] Yeah. You know, I think I think it's probably really useful to kind of start at like when, when the board of governors at the Federal Reserve meet, like, what what are they solving for? Right. Because I think that that helps really inform this conversation. Basically, Congress has told the fed, you have to deal with these these two thoughts simultaneously. You have to keep prices stable, which the fed has basically interpreted to mean inflation around 2% a year. Right. We want some inflation every year because it shows that there's a growing economy, but we don't want it out of hand. But we. But Congress said, while you're doing that, you also need to keep maximum employment. So that's an inflation rate or I'm sorry, an unemployment rate that's less than 5% about. So basically what that.

Blake Oliver: [00:35:25] We're about what four something four points.

Nich Tremper: [00:35:27] I think we're at four two right now based off of the last print.

Blake Oliver: [00:35:31] That's pretty good right? If I'm looking for a job, uh, I've got a pretty good chance of finding one.

Nich Tremper: [00:35:38] If you have a job right now, I think there's two labor markets, right? If you have a job right now, you're probably in a really good place. Um, we do know that long term unemployment has been, um, long term unemployment. Just meaning people who have been unemployed for six months or longer has been increasing over the last several months. Um, if you don't have a job, IT businesses aren't hiring, but they're also not letting folks go, right. So, um, so so it might be a little bit more difficult to to it is more difficult to find a job right now. Inconsistent with what we would expect with a low unemployment rate.

Blake Oliver: [00:36:12] Right. So back to inflation, right? We've got low unemployment, which is one of the Fed's core responsibilities. Try to keep unemployment, try to keep employment high. Right. And then we've got what was the second one.

Nich Tremper: [00:36:25] This this it's keeping prices stable. Right. So inflation around 2% or so. Right. So I think that as we go forward into the rest of the year, um, if we continue to see the labor market to add fewer and fewer jobs, as you know, last Friday, um, it's August 6th, I don't know when this will go live, but the July unemployment numbers indicate, um, we might see more and more movement towards lowering the interest rate as we get closer to the end of the year.

Blake Oliver: [00:36:57] And we saw two of the two of the fed. Are they governors who dissented on the latest move to keep them steady?

Nich Tremper: [00:37:05] That that that's exactly right. So there's two that have said actually the labor market is is weaker than we thought that it is. So what we need to do is lower, lower interest rates right now because if we lower interest rates and this was where you started the question, Blake, it it makes it cheaper to get loans. It makes it easier to get capital right. We can we can move money through the economy easier. Right. Um, and you know, later this week other fed governors are expected to speak. So we'll get kind of indications on, on their thoughts going forward. But this is this is a consensus organization. It's it's a vote. It's not the fed chair determining where rates go. Um, but you know, there's there's indications showing that that possibly the fed is thinking about putting more attention towards its, um, its labor market goals than controlling inflation goals. A high interest rate is generally because we want to, you know, slow inflation.

Blake Oliver: [00:38:02] I see so so this data that you mentioned, right? The the slowing labor market or the slowing job market is what could trigger the fed to vote for rate cut in the fall.

Nich Tremper: [00:38:15] I think that's right. But, you know, to to get to your question of like, will we see rates that were that we experienced a decade ago right near zero. Um, interest rates. The answer is probably not right. The Federal Reserve doesn't like rates to be that low. They were they were responding still to the Great Recession. Um, they were responding to Covid in 2021, uh, when those rates were 0%. Which means that, you know, for accountants that are talking to their, you know, talking to their clients about what what should you be thinking about if you're going to borrow money, if you're going out and you're seeking out capital, right. Is that. Yes. We're going interest rates are going to be higher than you want them to be, right? And interest rates are just the cost of borrowing money, which makes it so important that you really understand the ROI, that the returns on investment, on those borrowing costs. Because at the end of the day, if you expect to have profits increase by 10% because you get this loan, well at that probably exceeds your loan cost, right? And it's probably makes it worth your while. You know, a good a good adage about the stock market, right, is never try to time the stock market. And I think that that's really how folks should be thinking about getting loans, investing in their business going forward. Right? It might not be that optimal rate, that rate that you remember being so good in 2021. But if your business can still benefit from it, have a conversation with your accountant on if it makes sense for you financially.

Blake Oliver: [00:39:48] So greater need than ever for forecasting, for building the financial model that can justify the return on investment of these loans, which are more expensive than they used to be. Which I suppose is good for accountants because we can help with that.

Nich Tremper: [00:40:07] That's absolutely right. And, you know, apart from like core, you know, core financial services, tax prep, bookkeeping, things like that, offering, you know, small businesses are most excited to talk to their accountants about, um, these opportunities for actually thinking about the future financial strategy, cashflow planning, scenario planning, all of these things that really help a a business think of, you know, make, make the best decision for itself, right. You know, the share of businesses that are reporting productivity gains from their accountant has has never been higher. In 2021, about 52% of businesses said that accountants helped increase their productivity by, um, by this year when we did the survey again. So just in June 2025, when I had the survey in the field, two thirds to three quarters of businesses said that accountants, because of this, you know, financial strategy, planning services, uh, actually make the business more productive. It gives me more information to make a better decision about my business and really support my business. Um, for the long term, as I'm navigating the future.

Blake Oliver: [00:41:22] That's a big number. Did you say two thirds?

Nich Tremper: [00:41:25] Two thirds to three quarters?

Blake Oliver: [00:41:26] Yeah, two. Three quarters. So accountants not just being a cost. I have to pay to get my tax return done or to get my books done. Actually increasing the productivity of the business.

Nich Tremper: [00:41:40] That's absolutely right. And the number one reason when we asked them how this how this is working, it's because my accountant can give me information about my business that makes me more confident in my decision making. Right. So what this tells me is that small businesses view their accountants as a as partners. They're business partners, right? These are these are folks that are not not just, you know, these aren't these aren't number crunchers. These are people who are actively helping me figure out what I'm going to do next.

Blake Oliver: [00:42:12] Well, it makes sense that if we're these are surveys of gusto customers there.

Nich Tremper: [00:42:18] So we survey gusto customers, right. But we do do some statistical techniques to make sure that we're able to represent the national small business landscape.

Blake Oliver: [00:42:26] Okay. So that when you say that two thirds to three quarter number, that's across. That's the national business landscape.

Nich Tremper: [00:42:33] That that that's weighted to account for all small businesses. Yeah. That use accountants.

Blake Oliver: [00:42:37] Right. That's incredible. That's good news for our profession. That makes me happy.

Nich Tremper: [00:42:42] Small businesses love their accountants. Absolutely.

Blake Oliver: [00:42:46] How about new businesses? Any trends that you're seeing in new business formation? Entrepreneurship. And I'm thinking about this specifically from the perspective of new clients. New businesses need accountants. Where should we be focusing on based on what you're seeing?

Nich Tremper: [00:43:04] Yeah. So the the pandemic encouraged a lot of new businesses to, to be formed for the very first time. Right. Um, in the summer of 2020, we saw the number of new business applications just skyrocket. And as of June 2025, the number of new businesses were still 57% higher than June 2019. Um, I'm using, you know, those times to get a good pre pandemic, post pandemic period. Um, there's really been an entrepreneurship renaissance, um, in the United States. And one of the reasons that the economy has been so resilient is because these new businesses have been bringing creative ideas to market and things like that. Um, each year. Right. We want to understand gusto, wants to understand who these new businesses are. So we run a survey that we call the new Business Formation Survey. What we see is that businesses are really being created across the economy. Um, we're seeing a lot, you know, across across many industries. Um, but this year, for the first time, we saw that half of new businesses, almost half of new businesses were started by women, compared to 30% of new businesses started by women in 2019. So this is, you know, the face of, you know, people are embracing entrepreneurship across the economy, not just in specific industries. And we're also seeing shares increase in, in the, in the share of businesses started by, um, nonwhite entrepreneurs. Um, so again, this is this is broad, um, people across the economy, across the country are really starting businesses at these high rates. And they're facing similar challenges too, right? So the things that they said were their number one challenges when we asked them to, to rank their top three Our cash flow. Time management. Acquiring customers and employees. Right. And and at least two out of three of those are things that we've already talked about as accountants having a unique ability to to help their customers with and help their clients with cash flow analysis increasing, making your, your, your jobs more attractive to employees and keeping those folks around for a little bit longer.

Blake Oliver: [00:45:20] Cash flow, time management, and then hiring and getting customers.

Nich Tremper: [00:45:24] Yep.

Blake Oliver: [00:45:25] Exactly right. And time management. I mean artificial intelligence right there. Helping out with, uh, saving time, cash flow. I always tell accountants that that's the number one place you want to be is helping clients manage their money. Right? Stay on top of the cash flow, because that's what kills businesses. We've known this for a long time. It's not necessarily profitability. It's running out of cash.

Nich Tremper: [00:45:50] And and cash flow is is so volatile for so many small businesses, right? It's just there. There's there's feast and famine periods. Right. Um, and and and accountants view into. Okay. Well, how do we how do we smooth this? How do we maximize our cash flow? Is is something that's incredibly valuable to to small businesses. And it's something that, that they tell us when we ask them about their accountants that that they love that relationship the most.

Blake Oliver: [00:46:16] And it doesn't have to be complicated. Um, sometimes just helping a client switch from billing after the fact to collecting half or more of the fees that they charge upfront. If it's a service business, for example, like that can make all the difference. It doesn't have to be a a big, complicated thing.

Nich Tremper: [00:46:35] You know that. That's absolutely right. Or even just, you know, reminding, uh, customers or reminding clients to to invoice on time, right. To, to to not have the customer ask you, okay, where's my invoice? You know, things like that.

Blake Oliver: [00:46:50] Yeah. The accounting profession learned this or is is finally learning this. Uh, we've seen more and more firms billing upfront on monthly recurring fixed fees. And it's just the firms that do this are so much less stressed out. The firm owners I talked to who do this because they get their cash upfront. They have their cash to pay their employees and to pay their bills. And there's so much more certainty versus having all of this work in process that you've got to bill for. And maybe you never get paid for or you get paid for it months and months later.

Nich Tremper: [00:47:26] And and it also, you know, saves you money from having to do short term loans or taking out other cash flow. Right. So last year, 30% of businesses that either 30% of new businesses that had to either seek out a loan or throw in some personal money into the business did so to cover payroll expenses. Right? So this is because not because these are bad businesses or the model's not there, but it's because revenues don't line up with expenses, right? Like it's just they didn't have their customers, didn't pay them in time to pay their employees on time. So by thinking through these strategies and by letting your clients know that you offer these services where you can help them identify these, this low hanging fruit, right. It provides quite a bit of value to your small businesses.

Blake Oliver: [00:48:15] Nick, thanks so much for joining me and and walking me through these macroeconomic trends and more importantly, offering suggestions for how we can help as a profession. I've got maybe one more question for you. We'll see if it goes more than that. Um, because it's it's a meaty question. Okay. How are you feeling about the second half of this year? We're recording in early August. What's your outlook for small businesses going into 2026?

Nich Tremper: [00:48:47] I've. I've built my career over studying small businesses over like really digging deep into into the issues that that matter to them, whether that's, that's cashflow or hiring or offering benefits. And so I've got I've got a bias that I'm, I'm consistently optimistic about small businesses. Right. Like I think we need to really understand what small businesses have experienced in the last five years. Not a long time. Right. So the world shut down in a pandemic. Immediately after that, there was an inflation crisis where inflation was hitting 8 or 9%, um, historic highs. At the same time, there was a labor market reshuffle. Wages, wage growth was was incredibly high. And then after that we had uncertain tariff policy. Right. And through all of this, more and more people are choosing to start small businesses. They're looking out at the world, they're looking at their own skills, and they're saying, I can make a bet on myself that I have something of value to bring to the market. Right. So they've got this grit, this creativity. And, you know, I'm talking to a small business owner right now. I don't have to tell you all of this. Right. That this is, um, these are these are really, you know, these are the things that make me most optimistic about small businesses. And I think that the macro economy. Right. While we have seen softening, we have seen things that we want to keep an eye on. Nothing is falling. Consumer spending has continued to increase, albeit a bit slow, more slowly than we like. Um, that counts for seven out of $10 spent in the US economy. Um, people are are still or they're becoming more choosy about how they spend their money. But demand hasn't fallen off a cliff yet, right? So we're seeing really a foundation that that provides opportunity for those small businesses. And what we know, just based off of what we've seen in the last five years, is that small businesses will always bring creativity and grit to their market and find ways to to meet the demand for their customers.

Blake Oliver: [00:51:01] I've been speaking with Nicholas Tremper, senior economist at gusto. Nick, thank you so much for joining me and giving me a dose of optimism. It feels really nice, actually, because when you look at the headlines, sometimes you feel like the sky is falling, but it seems like the small business economy is is doing all right.

Nich Tremper: [00:51:24] Yeah. Let's let's not let's not lose the force for the trees. You know, um, I think there are things to watch, but, um, I'm always going to bet on small business owners, so thanks for having me.