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More Than 80% of Small Businesses Expect a Recession Ahead

More than 8 in 10 small business owners expect the U.S. economy to go into recession this year as the Federal Reserve raises interest rates to halt inflation.


Each quarter, CNBC and SurveyMonkey poll over 2,000 small business owners to measure the vitality of the American economy as well as the view from Main Street on jobs, taxes, and other hot topics. In addition to measuring small business confidence nationwide, the large sample size allows analysts to uncover trends by geographic region and among specific small business cohorts.

According to the second-quarter survey, more than 8 in 10 small business owners (81%) expect the U.S. economy to go into recession this year as the Federal Reserve raises interest rates in its effort to reduce a persistently high rate of inflation.

Seventy percent of small business owners assume higher interest rates will have a negative effect on their businesses in the next 6 months, which is potentially a sign of why so many small business owners believe a recession is coming.

 

Record high inflation contributes to dismal economic outlook

High inflation is also contributing to a dour economic outlook among small business owners. When asked to rate the current state of the economy:

  • 44% rate it as “poor”
  • 31% rate it as “fair”
  • 18% rate it as “good”
  • 6% say it is “excellent”

Meanwhile, 38% of small business owners surveyed say high inflation is the biggest concern facing their businesses right now, while 19% say supply chain disruptions, one of the root causes contributing to inflation, is the biggest concern they are facing.

Despite the weak outlook, the Small Business Confidence Index sits at 46 in the second quarter, a slight upward tick from last quarter and now the highest it’s been since President Biden took office.

This survey, which was conducted April 18-25, 2022, finds that thirty-six percent of small business owners describe business conditions as “good,” up from 33% last quarter, and fewer small business owners expect changes in tax policy and regulatory policy to have a negative impact on their businesses in the next 12 months.

This marks the seventh straight quarter the index has languished below 50, indicating more small business owners are pessimistic rather than optimistic. It’s now 16 points below the all-time high of 62 from Q3 2018.

“High inflation, climbing interest rates, and supply chain squeeze combine to give small business owners a clearly pessimistic outlook on the economy,” said Jon Cohen, Chief Research Officer at Momentive. “But some signs of cautious optimism also shine through, buoying overall small business confidence ahead of summer.”

 

Inflation is high, but fewer small business owners are raising prices

  • 35% of small business owners say now is a “bad time” for businesses to raise prices; 17% say it’s a “good time” to raise prices.
  • 75% of small business owners say they are currently experiencing rising costs of supplies, on par with the previous two quarters.
  • Among those experiencing rising costs, 40% say they are raising prices because of higher input costs, down from 47% in the first quarter. 24% say they are absorbing higher costs.

 

Confidence in President Biden and the Federal Reserve among small business owners remains low

  • Just 27% of small business owners are confident in the Federal Reserve’s ability to control inflation, while 72% are not confident. Both of these numbers are virtually unchanged from last quarter.
  • 13% of Republicans, 25% of independents, and 58% of Democrats are very or somewhat confident in the Federal Reserve’s ability to control inflation.
  • Among those who approve of the job Joe Biden is doing as president, 63% express confidence in the Fed. Among those who do not approve of Biden, just 9% express confidence in the Fed.
  • Overall, 67% of Small Business owners disapprove of President Biden’s job performance. That is unchanged from the first quarter.

For more information on survey results and methodology, visit CNBC|SurveyMonkey Small Business Survey.

 

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Photo: VectorMine, YFS Magazine, Adobe Stock
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