Associated Bank Thought Leadership Podcast

WGN: We're on with Duston Detrick, vice president in business banking, relationship manager at Associated Bank. Duston, welcome back.

Drew Lear: Morning, Steve. Thanks for having me back.

WGN: I want to focus our conversation on a couple of things—jobs, the economy, government shutdown. I know that's been in the news lately, and we've been talking about how that might impact the economy. I wonder, from your vantage point, how you see it impacting the economy overall.

DL: Yeah, in the banking perspective, we definitely have impacts directly. SBA in particular, if it were to happen, essentially freezes, and so any SBA loans and the books that haven't got to that approval side can absolutely stall or delay. And so from our perspective, that's not good. From a mortgage perspective, it can also slow down that processing part of it. So from a banking perspective, we feel it.

Obviously from an economy perspective, it depends on the duration if it does happen. Sometimes they're short. 2019, the last one, was actually 35 days long. You get some workforce disruption, kind of a COVID reference of essential versus non-essential, but those non-essential workers get furloughed. Oddly enough, even those essential ones get furloughed, but they work and just don't get paid, which is a little bit off.

But if it does happen again, the data and reporting, some of the BLS stuff, the labor stuff comes out, Consumer Price Index comes out this week. If it does happen, those won’t come out. Obviously, that's a big impact, and as you said, the economic side, it's going to weaken it. Some people aren't going to have paychecks. Governments aren’t going to be spending money, and consumer sentiment, which is maybe a little bit of a drag anyways, may get dragged down further. So if it happens, the duration matters. But if it lasts too long, it could definitely have an impact for sure.

WGN: You know, you mentioned earlier the SBA loans—that's a Small Business Administration loan. So, this would impact small businesses who are perhaps thinking about expanding or have some plans of growth.

DL: All the above. Yeah. I mean, we have one right now. It's an acquisition of a company and we're trying to get an authorization code before tomorrow. If we get the authorization code, we can still move this thing forward even if there's a shutdown. If not, we'll have to wait out the shutdown, right? And lending time kills deals. And so things can happen throughout that time. So, yeah, the SBA, Small Business Administration acquisition growth, unfortunately, if they don't get that code or are going into October, it can delay all of it.

WGN: You know, everybody's been talking about the Federal Reserve in their plans to lower interest rates a couple more times. The Fed relies on economic data that comes out of the government, especially the jobs report, which is scheduled to be released on Friday. And there's some inflation data that's also coming soon that could be delayed. Talk to us a little bit about why those two reports are important to be delivered on time if we hope to see an October rate cut.

DL: Yeah, you know, the feds have a couple of main sort of goals; one of maximum employment and the other is stable pricing. And so the employment's probably their most important when it comes to being reactive and making sure the economy is strong, and so that job report has had some what we'll call corrections: 911,000 jobs or something were taken away over the last 12 months. So that job report is super important to kind of see are we growing and if so, how much, and so that that job report's a huge part of how, you know, Powell and the Fed sort of decide on that interest rate.

But inflation has sort of ticked up. Food and grocery has gone up. We can all probably see that every time you go to the grocery store. And so the rates going down, if unemployment goes up,

but if inflation goes up, they don't want to have the rates go down because they actually increase inflation. So Powell’s sort of in the stagflation point of auditing. And so he's going to make that decision. But if those reports don't come out, I would assume he may still get it, but we wouldn't get it. The market wouldn't get it. And so it's definitely going to have a delay or some negative effect, I believe.

WGN: Yeah, I think the last government shutdown was in 2013. I might be wrong on that. But when we had the government shutdown then, we did see a jobs report delayed. The September jobs report was delayed until October. There was an inflation update that was postponed as well. Talk to us a little bit about this whole process. And without getting into the politics of it, it just feels like when we get to this point, it's one side holding the other hostage. Is there a better way to do this?

DL: I mean, it's leverage. It's negotiations. That's part of politics. And one side wants to get something, the other wants to get more than the other. And so in normal negotiations, there's going to be this back and forth. I think the biggest thing to see is that the midterms are coming up in 2026, and whatever side you’re on, how people view the shutdown is super important when it comes to that. And so whether they blame one side or the other, it's going to have a big impact on policy and regulation moving forward, and so it's kind of hard not to go into politics when that's essentially what's holding this up. So unless they can put that in the power of one group that's, you know, sort of objective and separate, I couldn't tell you the answer. They make a lot more money, if I could.

WGN: Right. We'd all if we had a crystal ball like that, we'd all be making a lot of money, I think. I want to change gears just a little bit, but still focusing on the economy, and draw your attention to comments that were made this week by the Cleveland Fed president who talked about the economy overall, said that there is concern that perhaps the Fed's interest rate goal or the Fed's inflation goal might not be met until a year or two from now. That's the 2% goal. That seems like a long time.

DL: It does when you're paying for it especially, right? I mean, again, have wages kept up with inflation? You know, they say about 57% of people's wages have kept up with inflation. Unfortunately for those other roughly 43%, it hasn't, right? So I agree, if it's two years from now, it's too far away, but they set that goal of 2%, and they have to get there. I mean, essentially that's what their power is, is their word. And so two years from now is a long time. But again, if unemployment continues to tick up, that's what those rates sort of are going to be used as they were last month and probably again in October to be able to help out in that.

But the markets show different. The market's been booming. I mean, record highs this year, even with the tariffs and the inflation and sort of the volatility and maybe even the geopolitics, the market has continued to show strength.

And what they were referencing in Cleveland like, we still think there's some cracks in the foundation--consumer sentiment, which is a huge part of our spending. You know, roughly 70% of the economy is us throwing out of our paycheck on a weekly basis. And if we start to say, hey, we're not sure if it's going to continue or we want to scale back, that has its power on the economy, and that's when that market will drag. And so as they're paid to do, they're visionaries. They’ve gotta figure it out and make sure we're headed in the right direction. It's a tough gig for sure.

WGN: Yeah, I want to drill down a little bit more on the markets part of that. Is the market high right now based on just a few companies? And is there concern that those companies—I think most of them are tech related stocks, right?—that really doesn't give a full picture of what's happening in the market.

DL: Yeah. I mean, just like anywhere, you know, that those larger companies, the 80/20 rule, if you will, where a lot of these larger companies are essentially pushing that market up, showing the profitability. I think the “Great 8” is what they're called. And those tech companies obviously have had their ups and downs.

But, you know, as far as whether the market's doing good, I mean, at the end of the day, it's that that top line: Where is it settling at and is it reaching the top because of those Great 8 or is there some other ones pushing it up and dragging it down? And for the last few years, it's sort of been the same case. And so if I had that crystal ball to be able to envision that, I definitely would be, like, making a lot more, driving a lot nicer car too. But yeah, I think it's up to if consumer sentiment continues to go down and spending goes down, obviously that's when that crack in the foundation gets larger and then the market will follow.

And I think that was their sort of answer was to say, we believe there's something coming based on some of those consumer sentiments. But if the rates get cut, job market continues strong, we can correct it. Right? That's the good news.

WGN: Yeah, that's the good news. The bad news is the job market might have some of those cracks you're talking about. In August, the jobs report showed just 22,000 jobs. I think the estimate for Friday's jobs report is for 45,000, significantly lower than we'd been seeing the last many years. Talk to us a little bit about what the collapse, perhaps, of the jobs market would do to the economy.

DL: Yeah, I mean, again, the Fed, that's the biggest indicator is maximum employment, and if unemployment starts to tick up, that's again when consumer spending goes down. And that's where those cracks come in.

I saw an estimate of 26,000 or so for September. We'll find out hopefully this week on Friday. But the correction came for 911,000 jobs over the last 12 months were taken away. So what we saw over the last twelve months, there was a dent put in it.

I think the interesting piece is there's been a change in leadership on the Bureau of Labor Statistics or that BLS side that comes out on Friday and some of the survey methodology, they're changing a lot of the responses. A lot of the data is sort of lagging or maybe behind and so they're coming up with new ways to do it. And so the job report's super important—how they collect that data and the accuracy of it, more importantly, needs to probably be corrected.

But the unemployment rate's absolutely there. It's 4.3%. They assume it'll stay the same when the jobs report comes out. We'll hope that it stays the same. Wages go up, maybe they cut interest rates again, and things continue to go in the right direction. If it comes back worse, there's a larger correction in that job report, that's when those cracks start to get much, much bigger.

WGN: Yeah. And then also concerning are stories this week about other employers who are planning job cuts and warning their employees about them. I think Microsoft is on that list. Ford Motor Company, Procter & Gamble—all saying they plan to cut thousands of jobs over the next 1 to 2 years. And so that's sort of in the pipeline as well.

Talk to us a little bit about the interest rate. I know we had a little cut. We had a cut. And more cuts are likely. But mortgage rates have not really moved a lot. Would you expect to see mortgage rates start to go down more than they have been? I know that might be not your area of expertise, but I think it drives the bigger economy.

DL: I mean we're looking at the yield. You know, obviously, the rates were cut this month. Mortgage rates actually ticked up a little bit on the residential side, if you will. On our side, commercial side, it went up a little bit as well. So people were unpleasantly surprised to see that they ticked up because, again, Powell talked about fighting inflation as well as the unemployment rate, which ticked up. You know, and so it's interesting to see where that sort of vision takes those mortgage rates.

And so if the rates continue to cut, oddly enough, if unemployment continues to go up and things look like they start to get worse, that's when those yields start to go down and that's when those mortgage rates will come down. So the irony is, you know, everybody's been sort of waiting on the sidelines to get a mortgage for those rates to go down. But if the rates finally go down and the unemployment picks up, some of those folks might not be able to get it. So it's been a tough cycle for sure.

WGN: Duston, I'm sure a lot of investors are listening right now and they're kind of wondering what you would tell them the play is here. What should investors be doing and how should they be preparing for, let's say, the next six months in the future?

DS: Yeah, you know, I think they're always going to say, you know, diversify, be the strategic, talk to somebody smarter, you know, make sure that you're looking forward and not being reactionary. It's a long play for sure. It's not a short play. You know, what I see on the commercial side to our business owners, you can't wait on the sidelines forever. You do have to be in growth mode. And whether that's waiting for tomorrow or even a couple of weeks, but you've got to have that play in hand, and so I would say be cautious, but at the same time, from a business perspective, always have that growth mentality.

WGN: All right, Duston, great conversation as always. How can people get a hold of you and have a one on one if they want

DL: Associated Bank. Give me an email. Give me a call. I'm on LinkedIn quite a bit as well. Either way, happy to start that conversation even in person, I do nowadays, so that's a nice change for a lot of these technology folks. So, either way, it works.

WGN: All right. Sounds good. Duston Detrick, Vice President and Business Banking Relationship Manager at Associated Bank. You can hear more of our thought leader conversations at AssociatedBank.com/ThoughtLeadership.