Spending and Inflation, Procurement Expenses, Impatience with AI Service Bots

Hey everybody, it's Gene Marks, and welcome to this week's episode of the Paychex Thrive Week in Review. This is where we take a few items out of the news that impact your small business and mine, and we talk about them a little bit. So, let's get right to it.

The first report comes from CFOdive.com and it has to do with consumer spending and inflation. Despite higher prices, CFO Dive reports, Americans are continuing to spend. New data from the Bureau of Economic Analysis shows consumer spending increased 0.7% in May, while the Federal Reserve's preferred inflation measure – the personal consumption expenditures index – rose 4.1% year over year, its highest level in three years.

Core inflation, which excludes food and energy, climbed (to) 3.4%, remaining well above the Fed's 2% target. Strong consumer demand and rising income suggest that the economy remains resilient, but the inflation surge has sharply reduced expectations for interest rate cuts.

Financial markets now increasingly expect the Federal Reserve to keep rates elevated or even raise them before the end of the year. For small businesses, the report signals that customers are still buying, but borrowing costs, wage pressures, and operational expenses are likely to remain elevated for the foreseeable future.

First of all, when has borrowing costs, wage pressures, and operating expenses not been an issue for anybody running a small business? They're gonna continue to be an issue. But I think one of my biggest takeaways here is that not only are the consumers spending and they continue to spend at a pretty strong rate, but inflation, excluding energy and food which you know that's arguable how important that is for a small business, is at 3.4%. It is still higher than that 2% target of the Fed, but you know what? It's a number that has been very manageable for most of my clients, and I'm sure manageable for you. I'm sure you would like to see inflation at a lower rate, but for the most part, a 3.4% inflation rate, not as big a deal.

And one other thing: There is rumors or there is talk that the Federal Reserve are gonna at least hold interest rates steady or even raise interest rates. Okay, well, if they raise interest rates even by a quarter of a percent, where the prime is close to 7% now, I am not sure that's gonna have a significant impact on our decision to do financing, particularly because as long as we can justify ROI, interest rates themselves are not out of control.

And interest rates themselves will ultimately, when they come down, can be, you know, restructured or refinanced, as well. So, I don't know many clients that are holding back on their investment or their building plans because they fear an interest rate increase. The general feeling is that any interest rate increase that happens will be somewhat smaller, and like I said, you know, a quarter of a basis point, which is just not gonna change their overall feeling.

So, bottom line is this: The economy remains resilient, consumer spending still strong, inflation higher than we'd like it, but still pretty manageable, and the same goes for interest rates, as well. So, that's good news for small businesses as we enter into the summer of 2026.

Now listen, just a quick note before we go even deeper into this conversation. It is moments like this talking about the challenges we face as business owners that remind me how important the right support can be, right? So that's where paychecks come in. They're trusted by nearly 800,000 businesses to handle payroll, HR, and benefits. It's like having a reliable partner who's got your back so you can focus on growing your business and leading your team.

So, take a minute after the podcast and see how they can help you at paychex.com/meet paychecks. That's P-A-Y-C-H-E-X.com forward slash M-E-E-T, P-A-Y-C-H-E-X. You can also find the link in the show notes. Okay, let's carry on.

The next news is about Walmart. Walmart Business is focusing on a hidden productivity dream for small businesses. The countless hours owners spend purchasing routine supplies. According to Walmart Business Senior Vice President Ashley Hupka, procurement isn't expensive because of what companies buy, it's expensive because of the time that employees spend researching products, comparing prices, placing orders, and reordering inventory. That is true.

Walmart believes automation, analytics, subscriptions, and AI can dramatically reduce this invisible work. AI tools can monitor inventory, recommend replenishment schedules, compare products, and automate recurring purchases, freeing owners to focus on sales and customer service instead of administrative tests.

So, what Walmart's strategy is, they are reflecting a broader shift among technology providers towards helping small businesses automate those back-office operations rather than simply lowering product costs. The message is clear: Reducing administrative workload may generate productivity gains that exceeds traditional purchasing savings.

So, the takeaway from Walmart's message, what I thought was very important and interesting to include in this week's Week in Review, is that, you know, for the most part, when you're looking at saving money on your purchases, don't just consider the price that you're paying. Consider all the work that's going in before you make that purchasing decision; all of the research, all the administrative time, all the paperwork that needs to be done. That really is the significant part of your cost, not necessarily actual price that you're paying for the product.

So, that's why you want to lean into technology and lean into AI and take advantage of whatever tools are out there to automate that process because that, in the end, is going to save you on purchasing costs and that is also going to have a big impact on your margins, as well.

All right, in this week's AI news, this comes from the website customerexperiencedive.com, and it has to do with automated customer support bots.

Businesses are heavily investing in AI-powered customer service, but many consumers still expect a fast path to a human representative. This was a recent survey by a firm called Parloa (that) found that most customers will repeat themselves only once before abandoning an automated support interaction altogether.

While AI chatbots can efficiently answer routine questions, frustration grows quickly when bots fail to understand requests, force customers through repetitive prompts, or prevent escalation to a live agent.

The findings suggest that companies should view AI as a tool to assist customer service, not replace it entirely. Successful organizations are designing support systems where AI handles simple, repetitive inquiries while seamlessly transforming more complex issues to human agents.

For small businesses adopting AI, maintaining easy access to knowledgeable employees may become an important competitive advantage in customer experience.

Man, too true. I am a big fan of using AI to automate certain processes. I totally get that, but AI cannot replace humans and cannot replace customer service. And you and I both know the feeling we get when we call someplace and it's clear that an AI bot answers the phone, and then you're trying to ask it a question and it doesn't understand it completely and then it repeats and then it takes you back and then you know it's a whole bunch of, you know, unused time.

There are some cases where AI bots can give you a quick answer and perform a task very simply, like maybe performing a restaurant reservation. But when there's customer service issues involved, particularly if it's a certain level of complexity, people want to talk to humans. I think it's fine for an AI bot to give it a shot at first, but my smartest clients are using AI agents, AI bots, virtual receptionists, but giving the caller a quick way out to speak to a human because they need to get an answer directly from a human.

So, that's something for all of us to remember. You are going to be inundated with offers and opportunities to use AI to automate your business, automate your phone system, automate your ticketing or customer service system. I think that is great. But please keep in mind AI cannot be used to replace humans in many, many cases. It can augment them, it can support them, and in some cases, it may be able to provide quick answers to your callers, but it is not a human replacement. So, please do not go into an AI investment thinking that you're going to just cut payroll. That is not the case.

My name is Gene Marks, and you have been watching or listening to the Paychex Thrive Week in Review. A couple things to take away. If you are interested in payroll or HR services, consider Paychex. Go to paychex.com/meetpaychex. Subscribe to this podcast either on your favorite podcast platform or on YouTube, and if you need any help or advice or tips in running your business, get our Paychex Thrive newsletter. Go to paychex.com/thrive.

Again, you have been watching or listening to the Paychex Thrive Week in Review, and my name is Gene Marks. Thanks for joining us. We'll see you again next week with some more news that impacts your small business and mine. Take care.

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