meIt’s less than a day after Goldman Sachs’ second-quarter earnings, where the company beat Wall Street expectations on strong bond trading earnings, but CEO David Solomon already has his attention elsewhere.
The global banking giant has brought its mission of more than a decade of supporting America’s small businesses through its 10,000 Small Businesses program to Washington, DC, convening the largest gathering of business leaders in US history. and lobbying Congress for more meaningful support for the sector, including a review by the US Small Business Administration (SBA).
“Small businesses faced a really tough challenge during the pandemic and now when they are coming out of [it]they’re dealing with inflation in the economy,” says Solomon.
Through the initiative, which counts Warren Buffett, Michael Bloomberg and Mary Barra among its advisers, Goldman Sachs has provided training and financing to more than 12,800 entrepreneurs who collectively generated $17.3 billion in revenue and employed more than 250,000 workers. since the start of the program in 2008.
Now, after facing unprecedented economic challenges in the last two and a half years due to the Covid-19 pandemic, 93% of companies recently surveyed by Goldman believe we are headed for a US recession and 89% % reports broader economic trends, including inflation. , supply chain and workforce challenges are still taking their toll. Given that small employers account for 64% of new jobs created in the US, according to the SBA, this is especially concerning.
“It’s not surprising that such a high percentage of these business owners are worried about a recession,” says Solomon, noting that, historically speaking, adjustment cycles accompanied by inflation are usually followed by a recession.
But while Solomon doesn’t yet believe that fate is “prepared in the cake,” pointing to the bank’s chief economist forecast for the US running large corporate organizations that sentiment is “slightly higher” than the house view. business.
The rapidly changing economic environment, coupled with the war in Ukraine and asset de-risking, has taken its toll on trading activity, says Solomon, with “anemic” activity in capital markets during the first half of the year. “Last year it was an anomaly, we said it when it was happening,” says Solomon. “But this [year] it’s also an anomaly… at the other end of the spectrum, history tells me there have been very few periods where capital markets activity remained anemic for years, right? Because companies have to get ahead. Solomon estimates that capital markets activity may pick up later in the second half of this year or next year.
And while prevailing fears of a near-term economic crisis loom large, 61% of business owners surveyed remain optimistic about their businesses and their abilities to grow their business. “The US economy is pretty resilient,” says Solomon. “I can’t predict whether or not there will be a recession, but I know we will get through it.”
“The US economy is quite resilient. I can’t predict whether or not there will be a recession, but I know we will get through it.”
In terms of how the bank advises short-term clients and business owners, Solomon believes discipline is key. “The important thing is to stay focused on what you can control … and make sure you’re allocating your resources where they’re really being productive,” he says. “It’s time to exercise a little more caution as we see whether or not we can navigate this with a softer landing.”
For Goldman itself, that will mean raising its risk profile and slowing the pace of hiring in the immediate term, something the company announced on its second-quarter earnings call, even as it braces for a hopeful rally ahead.
“We have grown the company very significantly in the last few years and still had plans for significant hires in the second half of this year,” explains Solomon. “Next year, we will significantly reduce the pace of hiring, but No freeze hiring. We’re still going to end up growing our [overall] very significant workforce this year and I suppose it will grow again next year, but [just] at a slower pace.”
Solomon’s North Star for companies navigating current uncertainty remains focused on the long term. “The trick in this environment is that you always have to take the long view and invest in your business,” he says. Waiting for the dust to settle a bit doesn’t hurt either.
“You have to be a little bit cautious until we have more certainty about the trajectory of the economic environment,” says Solomon. “So a little bit of caution, I think, could go a long way.”