While sentiment on Main Street is improving, concerns about the economy, stubborn inflation and the banking system weigh on small business owners, according to the latest quarterly survey from CNBC and Momentive.
Small business confidence for the second quarter rose slightly to 46 from 45 in the first quarter, although it still remains below the baseline for optimism. Forty percent of owners say current business conditions are good, up from 34 percent in the first quarter, and nearly half (46 percent) predict their income will increase next year.
But only 21% said they would describe the economy as good or excellent – less than half (44%) who described the economy as “poor” as inflation and the ongoing labor crisis persist.
The CNBC|SurveyMonkey Small Business Survey was conducted from April 17 to April 24 among more than 2,200 small business owners nationwide using the Momentive platform.
Inflation remains the No. 1 concern
The top concern for entrepreneurs is inflation, with 91% worried about price pressures and 41% saying it was their No. 1 concern. Fewer than a third of owners polled said they had confidence in the Federal Reserve, which raised rates again on Wednesday to control inflation but remained unchanged from the last quarter, signaling a possible pause. Labor shortages and supply chain disruptions round out the top three concerns for Main Street in the survey.
Inflation is proving stubborn, according to recent economic data, and is a constant concern for Bill Belknap, president of Downingtown, Pennsylvania-based construction company AEONRG. Belknap works on government contracts and said high inflation rates affect his bid prices. He is pleased to see inflation come down over the past year, but wants to see the trajectory continue.
“I would hope that we would get down to 2% to 3% interest rates as a goal for all of us, which would greatly help us to be able to make an offer(s).” “What I see is a snowball effect with the unpredictability of rising inflation, other people raising their prices … having that moderation and predictability is critical to our success.”
Banking crisis, higher rates aggravate
With the collapse of regional banks Silicon Valley Bank, Signature Bank and First Republic, bank safety and access to capital are also on the minds of small business owners.
More than 60% say they bank with community or regional banks, and the survey shows that owners are evenly split between those who express confidence in America’s banking system and those who do not. Most of the owners surveyed say they feel confident that their business capital is secure, but almost half say that it is not easy for them to access capital.
For some, the credit environment is beginning to change, but the movement began before the recent banking collapses. Mitchel Sellers, who runs Iowa Computer Gurus in Des Moines, Iowa, and has been in business for 17 years, says that even though he hasn’t been turned down for a loan recently, he’s been asked for more information when applying.
“It’s a tightening where banks are asking more questions and it’s getting harder to get a loan,” Sellers said. “I think business growth is being stifled because of interest rate hikes. We’re not expanding the way I want because I have to pay 6.5% interest on a loan that I paid 3% a year ago. It’s limiting my growth and our ability to expand.”
Before the Fed lifted the benchmark rate to a target range of 5% to 5.25% on Wednesday, many business loans were firmly above the double-digit rate mark when the SBA lending market prime rate factored in at 8% in April.
A higher interest rate environment is reflected in the latest survey from the National Federation of Independent Business, which tracked declining sentiment and a sharp drop in credit availability for March.
It’s a dynamic that Roth MKM analysts say is “unseen” outside of or before a recession. Fed Chairman Jerome Powell said Wednesday afternoon that he continues to believe a soft landing is possible for the economy, but added that a “soft recession” is also possible. The position of the Fed staff was to expect a mild recession.
Sellers said the environment informs the next steps for his business.
“We’re hedging our bets by making sure we just keep some things we don’t use, like a line of credit that we haven’t used in eight years, so I don’t need to get reapproved in the future,” he said. that’s a fear and the reason why we’ve made very strategic decisions not to take advantage of certain growth opportunities… get the working capital we may need in the future”.