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After years of struggling with coronavirus-related supply disruptions, inflation, job shortages, rising borrowing costs and even a spike in retail theft, new data suggests many small business owners are feeling at rock bottom. It suggests that it is falling.
The National Federation of Independent Business (NFIB) Small Business Optimism Index fell 0.9 points in March to 88.5, marking the lowest level of optimism among small businesses in the United States since December 2012. Additionally, the NFIB’s Small Business Optimism Index rose for the 27th consecutive month in March. This is below the average of 98 over the past 50 years.
“Owners continue to grapple with a number of economic headwinds,” said Bill Dunkelberg, chief economist at NFIB, noting that “inflation is again being reported as the No. 1 business issue on Main Street.” did.
“The report was pessimistic across the board,” Ed Yardeni, a veteran Wall Street economist and investment strategist who now runs Yardeni Research, said (rhetorically) in a note Tuesday. “Will depressed small business owners cause an economic downturn?” he asked.
answer? While their pessimism is cause for concern, it does not yet portend a recession.
According to the Small Business Administration, small businesses will employ 61.6 million Americans in 2023 and typically generate about 45% of U.S. economic activity. That makes their health critical to the overall U.S. economy, even though large publicly traded companies tend to get more attention.
Still, Yardeni, who has maintained a consensus optimistic outlook on the economy and markets in recent years, despite a recent decline in optimism among small business owners, said in Tuesday’s memo that In the details of the NFIB’s Small Business Optimism Index, we hinted that it reveals what we think. Although we are currently in a difficult period, we have not yet reached a recession-like slowdown.
The pessimistic backbone of the American economy
Yardeni’s view is based on the fact that small business owners are primarily concerned about issues that indicate the economy is heating up, rather than rapidly cooling down. For example, a quarter of all small business owners say that inflation is the most important problem they face, as seen in high labor and input costs. This is up 2 percentage points from February, but is still well below the survey’s all-time high of 41%.
The inflation problem for small and medium-sized businesses reflects the acceleration in the rate of increase in the consumer price index this year, from an annual rate of 3.1% in January to 3.5% in March. But inflation usually doesn’t rise when the economy is slowing. In fact, it often signals that the economy is growing rapidly, forcing companies to raise prices. NFIB research shows that that may be what is happening today. In response to higher costs, a net 28% of small businesses said they increased prices in March, and 43% said their average selling price increased.
NFIB research shows that talent retention is the second-biggest concern for small business owners, with a net 37% saying they have unfilled jobs. Again, this is a sign that the labor market remains tight, not a wave of recession-induced layoffs.
Furthermore, only 8% of small business owners said “low sales” was their top concern, compared to 34%, the highest in the survey’s history. Additionally, only 4% of small businesses cited interest rates as their top concern, compared to the highest in the survey at 37%. This shows that consumer demand in the economy remains strong and that interest rate hikes are not weighing too heavily on small and medium-sized enterprises at this time.
Commenting on the data, Yardeni said: “As more small business owners complain about weak sales and interest rates, they will become more concerned about the impact of the latest NFIB survey on economic downturns.” said.
Still, looking to the future, the net percentage of small business owners expecting sales volume to increase fell by 8 percentage points in March from the previous month, to a net negative 18%. “The small business sector is showing signs of a potential slowdown in economic activity due to lower net sales expectations,” NFIB researchers said in the report.
NFIB’s latest pessimistic survey also follows last week’s monthly employment report, which showed small business employment plans to be the weakest since May 2020. And with inflation still weighing on small businesses, 55% of business owners report lower profit margins in 2023. According to a December survey of more than 14,000 small businesses by Goldman Sachs,
Taken together, these issues provide evidence that small business owners are going through tough times and why they are so pessimistic. But Yardeni said: “Since the beginning of 2022, the economy’s strong performance has been contradicted by the growing pessimism of small business owners.”
Yardeni still believes the U.S. will avoid a recession in 2024, with a “Roaring 2020s” economy in which inflation recedes and new technologies such as AI boost the economy and markets as the most likely outcome going forward. I even see it as. Household net worth will reach a record high of $156.2 trillion in the second half of 2023, with baby boomers holding a record $76.2 trillion of that wealth for many years to come. Yardeni argues that there is plenty of capital to support the economy and markets.
“This helps explain the resilience of the economy and why we have not experienced a consumer-driven recession over the past two years as widely feared,” he said in a note Monday, adding: added to. Star Trek in the 1960s. They certainly took Spock’s credo to heart: “Live long and prosper.” He should have ended that thought with, “Then retire and spend it all before it expires.” ”
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