August 8, 2022
Main Street confidence at all-time low on confidence slump

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Small business confidence has hit an all-time low as much of Main Street continues to rage on expectations of inflation and a Federal Reserve unable to engineering a soft landing for the economy.

In fact, the majority of small business owners (57%) are participating CNBC / Survey Monkey Small Business Survey For Q3 2022 the slowdown seems to have already started, while another 14% predict a recession before the end of the year.

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

Pessimism is more widespread on Main Street than on the general population, according to the survey, which included a companion survey of nearly 12,000 non-business owners. Of this group, 45% believe the US economy has entered 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 said now is a good time to raise prices.

While inflation in input costs, energy prices and labor has been a top concern for small business owners throughout the year, its dominance in the minds of entrepreneurs continues to climb. According to the Q3 survey, 43% of small business owners say inflation is the biggest risk to their business right now, again from the last quarter, when it was 38%, and this is the highest reading reached in the last four quarters of the survey .

Only a minority of small business owners (26%) have confidence in the Federal Reserve to successfully fight inflation – a finding that is consistent with Q2 survey results.

The Fed continues to message inflation as its top priority and will continue to raise interest rates as long as prices are under control, but senior Fed leadership, including Chair Jerome Powell, have said they do not believe that the economy is in recession.

St. Louis Fed President James Bullard told CNBC on Wednesday, “We are not in a recession yet. … To some extent, there is a recession in the eye of the beholder.”

GDP has been negative for two consecutive quarters, indicating a slowdown based on history, but the US economy is proving resilient in some measures. While big box stores have been hit hard by changes in consumer behavior, overall consumer spending levels are still high. The labor market is strong, unemployment is low, and the latest macroeconomic data lends further support to the belief that a recession is avoidable. The ISM Non-Manufacturing Purchasing Managers’ Index released on Wednesday showed a surprising rebound. Meanwhile, the stock market turned in its best month since 2020.

Economists say that small business sentiment, similar to consumer sentiment, has a tendency to be reactive to long-term forecasts, and can result in sharp, short-term changes in sentiment. The current bearish view on Main Street, as captured by the Small Business Survey, differs significantly from the Fed’s approach. But the details that make up the core confidence index are a more general reflection of the economic downturn the Fed is attempting to engineer and more optimistic economists call a soft landing.

According to SurveyMonkey, which conducts surveys for CNBC, nearly every index component outperformed quarter-over-quarter, but the biggest confidence indicator this quarter is the weak sales outlook on Main Street. As the Fed attempts to cool demand across the economy with higher interest rates, more than one-quarter (28%) of small business owners expect their revenues to shrink over the next 12 months, compared with the previous quarter. was 21%. This was the biggest swing factor in the overall confidence index, which hit an all-time low in the third quarter.

More small businesses also anticipate cutting employees in the next year, up 14% quarter over quarter to 18%.

The percentage of small business owners who report business conditions as good (33%) dropped again from 36% in the second quarter of 2022. More than half (51%) of small business owners say the economy is “bad” above 44. % 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 43 during the first quarter of the Biden administration.

Partisan politics and economy

The small business demographic skew conservative and belief index shows 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 recession, compared to 34% of Democrats. The gap is even wider in how small business owners describe the economy, with 68% of Republicans using the word “poor” compared to 19% of Democrats.

More trouble for President Joe Biden, however, is the significant percentage of small business owners who identify as Democrats and think inflation will continue to rise. While the figure 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 hit the lowest level in his administration, with 31% of small business owners approving of how he handled the presidency.

While 81% of small business owners who are Democrats approve of Biden, pollsters have noted during this period of high inflation that presidents expect the vast majority of their party to offer support, often north of 90%. In. And as the CNBC/SurveyMonkey Small Business Survey showed this year, Biden’s approval rating will be There will be no improvement until inflation comes down. Biden’s approval is 29% among significant swing voters who identify as independents.

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

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