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Small business confidence has hit an all-time low as much of Main Street expects inflation to soar and the Federal Reserve’s inability to design a soft landing for the economy.
In fact, the majority of small business owners (57%) participate in CNBC / SurveyMonkey Small Business Survey for the third quarter of 2022 think a recession has begun, while another 14% predict a recession before the end of the year.
The CNBC/SurveyMonkey online poll was conducted July 25-31, 2022 among 2,557 self-identified small business owners nationwide.
According to the survey that included a companion poll of nearly 12,000 non-business owners, Main Street pessimism is more prevalent than the general population. Of this group, 45% believe the US economy has entered a recession.
More than three-quarters (77%) of small business owners surveyed expect prices to continue to rise. And while many large corporations continue to raise prices for customers and report healthy profits, only 13% of small businesses say it’s a good time to raise prices.
While input cost inflation, energy and labor prices have been a top concern for small business owners throughout the past year, its dominance in the minds of entrepreneurs continues to escalate. According to the Q3 survey, 43% of small business owners say inflation is the biggest risk to their business right now, rebounding from the previous quarter, when it was 38%, and the number the highest achieved in the last four survey quarters. .
Only a small number of small business owners (26%) trust the Federal Reserve to successfully fight inflation — a finding that matches Q2 survey results.
The Fed has continued to announce Inflation is a priority and interest rates will continue to rise until it comes under control, but senior Fed leadership including Chairman Jerome Powell has said they don’t believe the economy is in a recession.
Fed President St. Louis James Bullard told CNBC on Wednesday.
By some measures, the US economy is proving resilient. While major canned goods stores have been hit hard by changing consumer behavior, overall consumer spending remains high. Strong labor market, low unemployment rate, and latest macroeconomic data gave more support to the belief that a recession could be avoided. The ISM Non-Manufacturing Purchasing Managers’ Index, released on Wednesday, showed an unexpected rebound.
Economists say small business sentiment, similar to consumer sentiment, tends to be reactive rather than based on long-term forecasts, and that could lead to more visible changes , short-term in psychology. The current recession view on Main Street, as recorded by the Small Business Survey, differs significantly from that of the Fed. But in the details that make up the core confidence index, there are more general reflections of the recession the Fed is trying to engineer and more optimistic economists call a soft landing.
Nearly every component of the index deteriorated quarter-on-quarter, but the biggest indicator of confidence this quarter was the weaker sales outlook on Main Street, according to SurveyMonkey, which polls for CNBC. As the Fed works 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 % of the previous quarter. This was the biggest swing factor in the overall confidence index hitting an all-time low in Q3.
Many small businesses are also predicting staff cuts next year, up from 14% to 18% from the previous quarter.
The percentage of small business owners describing business conditions as good (33%), fell again, from 36% in the second quarter of 2022. Just over half (51%) of small business owners say the economy is “poor” “, up from 44% the previous quarter.
Partisan politics and the economy
Small business demographics tend to be conservative, and the confidence index reflects some of the partisan sentiment and persistent gap in politically-based survey responses. For example, 69% of Republican small business owners believe the economy is in a recession, compared with 34% of Democrats polled. The gap is even wider in how small business owners describe the economy, with 68% of Republicans using the word “poor,” compared with 19% of Democrats.
More worrisome for President Biden, however, is a significant percentage of small business owners who identify as Democrats and expect inflation to 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 reached the lowest level of his administration, with 31% of small business owners approving of how he has handled the presidency.
While 81% of Democratic small business owners endorse Biden, pollsters have noted that in these times of high inflation, presidents expect the vast majority of their party to support, often on the side. north is 90%. And as the CNBC/SurveyMonkey Small Business Survey pointed out this year, Biden’s approval rating will does not improve unless inflation falls. Biden’s approval among key voters who identify as an independent is 29%.
Only 9% of Republicans approve of Biden’s handling of the presidency.
