It’s less than a day following Goldman Sachs’ second-quarter earnings where the firm beat Wall Street’s expectations off of strong bond trading revenue—but CEO David Solomon already has his attention shifted elsewhere.
The global banking behemoth has taken its decade-plus mission of supporting America’s small businesses through its 10,000 Small Businesses program to Washington, D.C., convening the largest such gathering of business leaders in U.S. history and lobbying Congress for more significant support for the sector, including an overhaul of the U.S. Small Business Administration (SBA).
“Small businesses faced a really difficult challenge during the pandemic and now, as they’re coming out of [it], are dealing with inflation in the economy,” says Solomon.
Through the initiative, which counts Warren Buffett, Michael Bloomberg and Mary Barra among its advisors, Goldman Sachs has provided training and financing to over 12,800 entrepreneurs who have collectively generated $17.3 billion in revenue and employed more than 250,000 workers since the program’s inception in 2008.
Now, after navigating unprecedented economic challenges over the past two and a half years due to the Covid-19 pandemic, 93% of businesses recently surveyed by Goldman believe we’re headed towards a U.S. recession and 89% report broader economic trends, including inflation, supply chain and workforce challenges are still taking a toll. With small employers accounting for 64% of new jobs created in the U.S., according to the SBA, this is especially troubling.
“It’s not surprising that such a high percentage of these business owners are concerned about a recession,” says Solomon, noting that historically speaking, tightening cycles accompanied by inflation usually are followed by a recession.
But while Solomon doesn’t yet believe such a fate is “baked in the cake,” pointing to forecasts from the bank’s U.S. Chief Economist Jan Hatzius pegging the odds at about 30% over the next 12 months—he recognizes in speaking to business leaders running big corporate organizations that the sentiment is “slightly higher” than the firm’s house view.
The rapidly changing economic environment coupled with the war in Ukraine and de-risking of assets has taken its toll on business activity, says Solomon, with “anemic” capital markets activity during the first half of the year. “Last year was an anomaly—we said it when it was occuring,” says Solomon. “But this [year] is an anomaly too…on the other end of the spectrum, history tells me that there have been very few periods where capital markets activity remains anemic for years, right? Because businesses have to move forward.” 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 still remain optimistic about their businesses and their abilities to grow their business forward. “The U.S. economy is quite resilient,” says Solomon. “I can’t predict whether there will or won’t be a recession, but I do know that we’ll get through this.”
“The U.S. economy is quite resilient. I can’t predict whether there will or won’t be a recession, but I do know that we’ll get through this.”
In terms of how the bank is advising clients and business owners in the near term, 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 in places where they are really being productive,” he says. “It’s just time for a little bit more caution while we see whether or not we can navigate this with a softer landing.”
For Goldman itself, that will mean increasing its risk profile and scaling back the pace of hiring in the immediate term, something the company announced on it’s second-quarter earnings call—even as it prepares for a hopeful rebound ahead.
“We’ve grown the firm very significantly over the last few years and still had plans for significant hiring in the back half of this year,” explains Solomon. “Next year, we’re significantly slowing down the pace of hiring, but we don’t have a hiring freeze. We’re still going to wind up growing our [overall] headcount very meaningfully this year and my guess is, it’ll grow again next year—but [just] at a slower pace.”
Solomon’s north star for businesses navigating the current uncertainty remains being focused on the long term. “The trick in this environment is you always have to be taking the long view and investing in your business,” he says. Waiting for the dust to settle a bit doesn’t hurt either.
“You’ve got to be a little bit cautious until we have more certainty around the trajectory of the economic environment,” says Solomon. “And so a little bit of caution, I think, could go a long way.”