Mark Sanchez: This is the week after two years, two plus years, about two and a half years, and it was in early 2022 when inflation was hitting hard that the Federal Reserve started this really rapid rise in interest rates that are higher than a lot of folks have seen for a generation. We're now at that point, inflation's getting under control. It's certainly much better than a year or two ago. The labor market's cooling off, the economy's cooling off. And the Federal Reserve, what's known as the Federal Open Market Committee, these are the folks that decide on interest rates and it's what's called the Federal Funds Rate, it's a benchmark rate. And we're at that point this week, Wednesday and Thursday, the FOMC is meeting and they finally start bringing down interest rates. Widely expected a quarter point decline and that will begin a series of interest rate reductions over the next several months. And in this week's Crain’s Grand Rapids Business, I kind of took a look at, well, one industry that's one sector area that's been kind of down the last couple of years as rates rose has been mergers and acquisitions. There's a lot of folks out there and men and women that are hitting retirement age, they'd like to sell their business and exit and move into retirement. There's also a lot of financial private equity investors that are looking to buy and make acquisitions. They're strategic acquirers. And the activity's been down a little bit, maybe more than a little bit the last two years, because one of the reasons is the cost of financing the deal has gone up with the higher interest rates. So, I talked to a number of folks who work in that field, M&A, mergers and acquisitions, and the beginning of interest rates coming down, and it will probably take more than a quarter point to affect the market, this should unleash some activity. You can finance a deal for a little less cost, presuming the Federal Reserve does indeed follow this wide expectation that rates will start coming down. So, the financing cost for a deal will go down and that could bring more buyers into the market and that could surely bring more sellers into the market. Folks who are saying, you know, these rates are high, it's costing more for that buyer to finance a deal, that's affected the valuation of my business, so I can't get as much for it. Once rates start coming down, there's a big expectation that this will generate some more activity in M&A and maybe a quarter point here, maybe a quarter point there, and that starts the trend. Financing costs are lower again. And that kind of unleashes some activity in the marketplace.
Patrick Center: Do you get the sense that a quarter point will spur conversation, and a half a point might get things moving faster?
Mark Sanchez: That's kind of a general, general view a lot of folks had. It's also not just the financial impact there's a psychological effect that, ah, rates are coming down. Now's the time to strike. So, when it takes, you know, a number of months to put together a deal. So, if you decide today, I want to sell my business, you're talking maybe a six month or more process to go through that process, find the right buyer, structure a deal and get it done. So, there's also a psychological effect that rates are coming down. They came down a quarter point here. Maybe. They're going to continue coming down. So, by the time we finally put this deal together, there's going to be a fair amount of a reduction in what it costs to finance a transaction. So, the expectation is that it's going to at least start spurring a lot more conversation than what we've had the last two and a half years.
Patrick Center: There's a new Michigan coalition. They're called Protect Our Produce. They're questioning the high price, the wage mandates surrounding migrant agriculture workers.
Mark Sanchez: Yeah, this is a story my coworker, Abby Poirier, did this week, and it's an interesting piece about, you know, we've seen the formation of this new Michigan farming coalition that really wants to highlight the buying that they say rising federal wage mandates are imposing on them. And its wage mandates for migrant labor, and it's putting the state's agricultural economy maybe at a little risk. Protect our Produce, it includes the folks who grow asparagus, tart cherries, apples, blueberries, and other hand-picked crops in the state. And in 2024, Michigan's what's known as the adverse effect wage rate that the U.S. Department of Labor sets for migrant workers who are here on H-2A visas, that wage wrote for the 10th straight year, and Michigan farmers today pay about $18.50 an hour for H-2A labor. That's an increase of 6.7% from the prior year. And really putting this Protect our Produce coalition together, they're saying that this is becoming a problem, and they really want to identify some solutions and get the state industry back more on some more sustainable footing. You know, this is a big industry in Michigan, agriculture. It's one of the largest in the nation. It's also very diverse. And basically, this coalition of growers and is saying that these wage pressures are causing some problems and could start affecting the financial sustainability for some operators.
Patrick Center: What are the expected wage increases that we're seeing in this industry that are impacting this farm group?
Mark Sanchez: This is set by the U.S.D.A. year-to-year and for 2024 it was a 6.7% increase. Now in the last two years across all sectors of the economy, we've seen bigger wage increases than what was the norm for the last decade plus. But that 6.7% is a pretty sizable increase in what we've seen the last two years for any industry and the economy. So, any employer knows what the wages are doing. It pressures the bottom line. It pressures the operations a little bit. Obviously, you want to keep good employees on the payroll and keep attracting and retaining. Wages are a big part of that. But what the coalition here, Protector Produce, is saying that this 6.7% this year and these increases year-to- year are a little more than they can handle.
Patrick Center: We're talking with Crain's Grand Rapids Business staff writer, Mark Sanchez. Let's stick with wages and some of the new minimum wage rules that we're seeing.
Mark Sanchez: Yeah. And this is a situation with this state Supreme court ruling back in July. This is going to be an issue that you're just going to continue hearing about until it either takes effect or perhaps in the lame duck session late this year, after the election, the legislature may make some changes. Bottom line, and this is a story that our Lansing correspondent, Dave Eggert for Crain’s, wrote this week. And the state is going to proceed with implementing this minimum wage schedule that will include an initial jump up to $12.48 an hour next year and then $14.97 an hour by 2028. The current state minimum wage is $10.33 an hour. Basically, the state had asked the state Supreme Court to kind of weigh in on the request to really clarify the ruling that resulted in the wage hike and also kind of a lower minimum wage for tipped workers that's going to get phased out. So, the governor asked for some clarity from the court. It hadn't really heard it. So now the state's having to move forward and implement this court ruling that puts into effect these new minimum wages. Now I've been the last couple of weeks been through a couple of presentations at events and there is an expectation that the legislature will do something in that lame duck session, but for both the minimum wage and the paid sick time, that was also part of the ruling that really is going to add some administrative burdens for employers. So, we'll see what transpires. Week ago, when I had an event with Brian Calley, who's the CEO of the Small Business Association of Michigan. He gave it about a 50-50 chance the legislature will make some changes in this law. Although he wasn't too optimistic that it will be really changes that the business community finds palatable. So, it's again, these are coming early next year, both the changes for paid sick time and the minimum wage, and we'll see what the legislature does.
Patrick Center: Crain's Grand Rapids Business staff writer, Mark Sanchez, thank you so much.
Mark Sanchez: Thank you, Patrick.