Bank of America President of Small Business and Head of Specialty Bank & Lending Sharon Miller discusses the release of the 2023 Small Business Owner Report and breaks down the top concerns facing business owners.
Small business sentiment fell to a 10-year low in April, reflecting fears about the near-term economic outlook, persistent labor shortages and chronic inflation.
The National Federation of Independent Businesses, a Tennessee-based association of small business owners, said its Small Business Optimism Index fell to 89 last month, down 1.1 percentage points from March. It marks the 16th consecutive month with readings below the 48-year average of 98 and the lowest reading since January 2013.
Small businesses are also pessimistic about the future: the share of owners who expect better business conditions over the next six months fell two points to a net -49%.
Worker quality continued to pose the biggest threat to small businesses in April, as historically low unemployment and rapid wage increases made it harder for the owners of these businesses to compete with large companies and hire workers. About 40% of small business employees reported raising compensation last month, while 21% plan to increase wages in the next three months.
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“We are closing, thank you for your support and business after 35 years” sign on a small business door in Queens, New York. (Lindsey Nicholson/UCG/Universal Images Group via Getty Images/Getty Images)
About 9% of owners cited labor costs as the biggest business problem – compared to 24% who identified work quality.
“Optimism is not improving on Main Street as more owners struggle to find qualified workers for their vacancies,” said Bill Dunkelberg, NFIB chief economist. “Inflation remains a major concern for small businesses, but is showing signs of easing.”
At the same time, stubborn inflation remains a top risk for small businesses, with 23% citing it as the biggest problem.
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Inflation showed welcome signs of cooling in March, according to Data from the Ministry of Labour published last month. But core prices pointed to strong underlying price pressures still bubbling under the surface. The consumer price index remains about three times higher than the pre-pandemic average, underscoring the continuing financial burden that high prices have placed on millions of American households and small businesses.
The NFIB survey comes just a day before the release of new consumer price index data, which is expected to show the increasing stickiness of inflation. Economists surveyed by Refinitiv expect inflation to rise 0.1% from the previous month and 5% from a year earlier, more than double the pre-pandemic average.
A customer looks over merchandise at a store on March 14, 2023 in Miami, Florida. ((Photo by Joe Raedle/Getty Images) / Getty Images)
More worryingly, economists expect core inflation – which excludes the more volatile measures of food and energy – to rise 0.4% for the month and 5.6% from a year earlier.
Although the survey of small businesses hinted at an impending slowdown this year due to higher interest rates and tighter credit conditions, businesses reported few problems accessing credit – a welcome sign.
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Thirty percent of small businesses reported that all of their credit needs were met, an increase from the previous month. Only 6% said their last loan was more difficult to acquire than before a wave of bank collapses, also down from March.
When credit conditions tighten, banks significantly raise their lending standards, which makes it difficult to take out a loan. Borrowers may have to accept stricter terms such as high interest rates as banks try to reduce the financial risk on their side. Fewer loans would, in turn, lead to smaller ticket expenses for consumers and businesses.
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