Andrew J. Ryback
Nearly 1,400 business leaders attended EDAWN’s State of the Economy presentation in January. As I spoke with local business leaders, I realized that we, as a regional economy, have finally shifted to a post-pandemic reality. It was clear that the gathering was a milestone for Nevada businesses looking for indicators of the economy ahead. The challenges and opportunities for the region’s businesses laid out by EDAWN’s CEO Mike Kazmierski and the data driven insights from Brian Gordon with Applied Analysis were indicative of a much more normal business cycle than what we experienced over the last three years.
There is still a significant economic hangover from the pandemic, but as I’ve talked to colleagues in the banking industry and our clients in Northern Nevada, there is a pervasive sense of cautious optimism. While the recent collapses of Silicon Valley Bank and Signature Bank roiled markets, a deeper look shows a fundamentally strong banking sector and a durable national economy. If businesses and policymakers make smart decisions now and withstand what currently looks like a mild recession in 2023, the long-term outlook shows promise.
Reasons for Optimism
There are real reasons to be optimistic about Northern Nevada’s long-term economic future. We remain a very attractive place to do business. As the LA Times recently noted, Northern Nevada is a go-to destination for businesses and workers leaving California. Our economy continues to diversify with major companies like Tesla and Redwood Materials securing financing to invest further in renewables; Nevada has led the country in manufacturing growth since 2010. Hospitality, tourism, agriculture, logistics and gaming continue to be vibrant industries that provide a solid mix of employment and business investment opportunities.
Nationally, the aggressive interest rate increases from the Federal Reserve show signs of working as consumer price increases have started to slow. Employment remains at historic levels. The exogenous shocks from the pandemic and supply-chain disruptions are in the rearview mirror, leaving an economy with the opportunity to truly thrive in the coming years.
Economic challenges, locally and nationally
While there are underlying factors that indicate long-term economic strength, we cannot ignore the present economic realities. Seventy-eight percent of Americans rate our economy as “poor,” according to a recent survey from Pew. Inflation is still at 40-year highs and the Federal Reserve will continue to raise interest rates until it is fully contained. That means higher costs for businesses, borrowers and consumers.
Despite the unfortunate events surrounding Silicon Valley Bank and Signature Bank, the national banking system is resilient and community banks remain safe, sound and secure. As more information on the failures has come to light, it underscores the need for banks to have strong governance and risk management protocols in place. Plumas Bank has more than 40 years of experience in community banking; as a result, we have highly diversified loans and a highly liquid investment portfolio. The Federal Reserve’s decision to continue inflation-fighting interest rate increases after the collapses of SVB and Signature Bank demonstrates their belief in a strong banking system.
Here in Northern Nevada, we face a slowing housing market, diminished purchasing power, and an underfunded education system. Some banks are starting to see deposit outflows as businesses tap their savings to cushion the blow from increased costs. This means that some lenders may be more limited in their ability to fund loans, curtailing expansion opportunities for some businesses. Enterprises looking for funding may need to explore new banking relationships. Business leaders and policymakers need to take proactive steps to address this new economic environment and navigate the uncertainties to come.
Keep Calm and Plan On
During this time of financial uncertainty businesses need to focus on the basics: employees, customers, and scenario planning. Through scenario planning, investing in talent and retaining their best customers, businesses can limit risk and unlock new opportunities. When it comes to businesses in our region – especially those in agriculture – the rapidly rising rate environment is detrimental as these borrowers are more likely to have adjustable-rate loans compared to other industries. At Plumas Bank, we will continue working closely with our borrowers to help them understand the impact of rising rates and other costs and adjust their business strategies accordingly.
Community banks like ours can leverage our deep relationships and expertise in local markets to help borrowers smartly restructure their debts and make strategic decisions as they move toward a future with considerable economic volatility.
Smart Policies for Small Businesses
Our shared goal must be to stabilize the nation’s economy by getting inflation under control and spur steady economic growth, business formation and expansion. While the Federal Reserve’s focus is rightly on macroeconomic inflation, Congress can and should make policy changes to support small and rural businesses.
One way Congress can spur foundational economic growth, especially in rural and farming communities, is by treating community banks the same as credit unions when it comes to taxes on loans made to those communities. Often rural communities don’t have access to the full range of economic resources but Congress can change that by incentivizing rural lending.
Another way Congress can support small business is to heed the call of the Independent Community Bankers of America (ICBA) and pass the Safe Banking Act to provide banking services to cannabis-related businesses in states where cannabis is legal. There is no reason these businesses shouldn’t have the same access to banking services as other start-ups and small businesses do. These are changes community banks have been advocating for at the national level.
Here in Northern Nevada, our elected officials must prioritize investments in education and workforce development to demonstrate the long-term viability of the region as a place to grow a business.
This year will be the year we truly exit the pandemic economy, and it will continue to be bumpy. We can be optimistic that the building blocks for a strong economy are present; business leaders need to leverage the guidance that partners like community banks can offer to navigate the challenges and seize the opportunities for growth.
Andrew J. Ryback is the President and Chief Executive Officer of Plumas Bank and its holding company, Plumas Bancorp.
