The Fed does not agree, but Main Street says “the recession is already here”.

FG Trading | E + | Getty Images

Small business confidence is at an all-time low as the majority of Main Street anticipates runaway inflation and the Federal Reserve unable to engineer a soft landing for the economy, slashing revenue and slashing staff across sectors.

The majority of small business owners (57%) participating in the CNBC/SurveyMonkey Small Business Survey for the third quarter of 2022 believe the recession has already begun, with another 14% expecting a recession before the end of the year.

The CNBC/SurveyMonkey survey was conducted online July 25-31, 2022 among a national sample of 2,557 self-identified small business owners.

Main Street pessimism is prevalent more than the general population, according to the survey, which included an accompanying survey of nearly 12,000 non-business owners. Of this group, 45% believe that the US economy has entered a recession.

CNBC data correspond | SurveyMonkey with other surveys of the small business community.

“The outlook for business conditions in our monthly survey has deteriorated quite a bit since the beginning of the year,” said Holly Wade, executive director of research at the National Federation of Independent Business, speaking at CNBC’s Small Business Playbook virtual summit on Wednesday.

While inflation in input costs, energy prices and labor has been a major concern for small business owners throughout the year, its dominance in the minds of entrepreneurs continues to climb. According to a third-quarter survey, 43% of small business owners said inflation is the biggest risk to their business right now, up again from last quarter, when it was 38%, and the highest reading reached in the past four quarters of surveys.

“It has definitely escalated since the beginning of the year, and most of them don’t see an end in sight or an easing of this problem,” Wade said.

More than three-quarters (77%) of small business owners surveyed expect prices to continue to rise. And while many large companies continue to pass price increases on to customers and report healthy profits, only 13% of small businesses said now was the time to raise prices.

“The number one tool in dealing with inflation, those high input costs, pass those costs on to the customer. Unfortunately, a lot of times, they don’t get to do that right away. So it hurts cash flow and it makes managing cash flow really difficult and it affects profits. “.

Only a minority of small business owners (26%) have confidence in the Federal Reserve to successfully fight inflation — a finding consistent with the results of the second quarter survey.

The Fed continued to send a message that inflation is a top priority and that interest rates will continue to increase until rates are controlled, but the Fed’s top leadership including President Jerome Powell said they do not believe the economy is in a recession.

“We’re not in a recession right now… To some extent, there’s a recession in the eyes of the beholder,” James Bullard, president of the Federal Reserve Bank of St. Louis, told CNBC on Wednesday.

GDP has been negative for two consecutive quarters, a history-based recession indicator, but by some measures, the US economy has proven resilient. While big box stores have been hit hard by changing consumer behavior, overall consumer spending levels remain high. The labor market is strong, unemployment is low, and the latest macroeconomic data has given further support to the belief that a recession can be avoided. The ISM Non-Manufacturing PMI, released on Wednesday, showed a surprising recovery. Meanwhile, the stock market had its best month since 2020.

Economists say small business sentiment, similar to consumer sentiment, tends to be reactive rather than reliant on long-term forecasting, and this can lead to sharper short-term shifts in sentiment. The view of the current recession on Main Street, as reported in the Small Business Survey, is very different from that of the Federal Reserve. But in the details that make up the core confidence index, there is a more general reflection of the economic slowdown the Fed is trying to engineer and which the most optimistic economists describe as a soft landing.

According to SurveyMonkey, which conducts the survey for CNBC, nearly every component of the index worsened on a quarterly basis, but the confidence index looming this quarter is a weaker sales outlook on Main Street. As the Fed tries to cool demand across the economy with higher interest rates, more than a quarter (28%) of small business owners expect their revenue to decline over the next 12 months, up from 21% last quarter. This was the biggest swing factor in the overall confidence index, which hit an all-time low in the third quarter.

It also expects more small businesses to lay off employees over the next year, up from 14% to 18% on a quarterly basis.

The percentage of small business owners who describe business conditions as good (33%) is down again, from 36% in the second quarter of 2022. More than half (51%) of small business owners say the economy is “poor,” up from 44% The last quarter.

Nearly three-quarters (74%) expect higher interest rates to be negative for their business.

The confidence index score was 42 out of 100, down from 46 in the second quarter. The previous low was a score of 43 during the first quarter of the Biden administration.

Wade said that although many small business owners in the NFIB survey do not believe the recession has begun, they expect economic headwinds. “We’ve seen a pullback from those who expect higher sales in the next quarter,” she said.

But for now, she said, hiring and sales in the small business sector are “stumbling.”

Party politics and the economy

Small business demographic skew is conservative and the confidence index reflects some partisan sentiment and persistent gaps in survey responses based on politics. For example, 69% of Republican small business owners believe the economy is in a recession, compared to 34% of Democrats surveyed. This gap in how small business owners describe the economy is widening, with 68% of Republicans using the word “poor,” compared to 19% of Democrats.

But what is most worrying for President Joe Biden is the large proportion of small business owners who consider themselves Democrats and believe that inflation will continue to rise. While that number is 89% among Republicans, and the partisan gap is wide, more than half of Democrats (51%) agree.

President Biden’s approval rating on Main Street is the lowest in his administration, with 31% of small business owners approving of how he has run for president.

While 81% of Democratic small business owners approve of Biden, pollsters have noted during this period of high inflation that presidents expect the vast majority of their party to provide support, often the northern 90%. And as this year’s CNBC/SurveyMonkey Small Business Survey showed, Biden’s approval rating won’t improve unless inflation drops. Biden’s approval rating among significant swing voters who are considered independent is 29%.

Only 9% of Republicans approve of Biden’s handling of the presidency.

Leave a Comment