MainStreet Macro: Back to basics

February 13, 2023 | read time icon 4 min

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With inflation, Silicon Valley layoffs and the federal debt ceiling dominating economic headlines, the real economy can get lost. Today, to mark the 100th edition of MainStreet Macro, I thought we’d get back to basics.

Let’s start with a reminder of why Main Street is the economy’s growth engine.


The U.S. economy is fueled by everyday consumers, whose spending accounts for 70 percent of economic growth. The pandemic, supply shortages, and inflation have conspired against consumer spending for three long years, but the consumer has proved resilient.

As we settle into our new normalcy, however, there’s a cautionary note. December’s retail spending data showed that consumers aren’t indestructible. Our post-pandemic shopping euphoria has been dampened by inflation, we’re tapping the savings we accumulated during the pandemic, and increasingly we’re turning to credit cards, which now carry higher interest rates.

Small businesses

Main Street employers also are instrumental to the economy. Historically, small business is the primary driver of net new jobs. More recently, small business led the economy out of its pandemic downturn. Helped by government aid, mom-and-pop shops were more quick to start hiring than larger employers.

A recent surge of new businesses has changed the fiber of the labor market. A record number of people established their own companies during the pandemic, adding to the already tight competition for workers. The viability of these pandemic-born businesses will help keep the labor market vibrant over the near and long term.


Which brings us to workers, the third leg of the Main Street economy. In the long term, economies grow when they add workers, and they’re buoyed again as those workers become more productive over time.

Recently we’ve seen improvement on both counts. U.S. immigration, which had been subdued by the pandemic, rebounded last year, with nearly 1.3 million immigrants joining the workforce.

And after three straight quarters of year-over-year productivity declines – the first extended downturn in almost 40 years – productivity picked up in the fourth quarter of 2022, according to the Bureau of Labor Statistics. Despite the better than expected showing last quarter, productivity was still down from a year ago, showing the economy still has work to do on this front. More workers producing more goods and services that consumers want and need pave the way for a stronger economy. 

What’s next?

Main Street gives a lot to the U.S. economy, but it requires inputs to thrive.  Here’s what Main Street needs to power growth in the year ahead.

Certainty. Consumers, workers and businesses need predictability in order to optimize their contribution to the economy. Volatility and surging inflation makes it difficult for small employers to plan, spend and hire.

Main Street seems to be feeling more comfortable with the pace of inflation. Consumers expect price growth to slow to 5 percent over the next year, which would be the lowest rate since July 2021, according to the Federal Reserve Bank of New York’s Survey of Consumer Expectations.

Main Street also expects to earn more and spend less in 2023 as inflation starts to slow.

Ability to borrow. Businesses often borrow to fund purchases of big-ticket items or grow their operations. But borrowing costs have risen over the past year as the Federal Reserve raised interest rates to tame inflation. The share of banks tightening access to credit for small and medium businesses is the highest since 2020, according to the central bank’s Senior Loan Officer Survey

Consumers are feeling the borrowing pinch, too. Banks have raised standards for credit cards, auto loans, and mortgages. 

Government relief helped Main Street fill the gap for the past three years, but going forward, businesses and consumers will be much more dependent on credit to fund their spending and investment.

Access to capital. Investment capital is more than the lifeblood of Wall Street; it’s also critical to Main Street. It helps fuel a healthy ecosystem that leads to more goods and services, lower costs, and higher productivity.

Business investment took a hit during the pandemic, but it’s on a rebound, growing nearly 12 percent in the fourth quarter of 2022 from the prior quarter. Despite that growth, however, investment remains lower than it was during the fourth quarter of 2021, when financing was cheaper.

In a complicated world, it’s easy to overlook the basics. Main Street can’t be ignored as a vital component of a soft landing for the economy in 2023. As long as its core components – its consumers, workers, and small businesses – stay healthy, the overall economy can thrive.