The Fed disagrees, but Main Street says “the recession is already here.”

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Small business confidence has hit an all-time low as most on Main Street expect runaway inflation and a Federal Reserve that is unable to engineer a soft landing for the economy, leading to declining revenues and job cuts. staff in all sectors.

The majority of small business owners (57%) who participate in the CNBC/SurveyMonkey Small Business Survey for the third quarter of 2022 they believe that the recession has already begun, 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 on Main Street is more widespread than in the general population, according to the survey, which included a supplemental survey of nearly 12,000 homeowners without businesses. Among this group, 45% believe that the US economy has entered a recession.

The CNBC|SurveyMonkey data is in line with other surveys of the small business community.

“The outlook for business conditions in our monthly survey has deteriorated quite a bit since the beginning of the year,” said Holly Wade, executive director of research for the National Federation of Independent Business, speaking on CNBC’s virtual Small Business Playbook summit on Wednesday.

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

“It’s certainly increased since the beginning of the year, and most don’t see an end in sight or relief from this problem,” Wade said.

More than three-quarters (77%) of surveyed small business owners expect prices to continue to rise. And while many large corporations continue to pass price increases on to customers and report healthy profits, only 13% of small businesses said now is a good time to raise prices.

“Their No. 1 tool for dealing with inflation, those higher input costs, is passing those costs on to the customer. Unfortunately, a lot of times, they can’t do that right away. So you’re really hurting cash flow and making cash flow manageable.” cash is really tough and it hurts the bottom line,” Wade said.

Only a minority of small business owners (26%) trust the Federal Reserve to successfully fight inflation, a finding that is consistent with the results of the second quarter survey.

The Fed has continued to send messages inflation as their top priority and that interest rates will continue to rise until it gets prices under control, but top Fed officials, including Chairman Jerome Powell, have said they don’t think the economy is in a recession.

“We’re not in a recession right now… To an extent, a recession is in the eye of the beholder,” St. Louis Fed President James Bullard told CNBC on Wednesday.

GDP has been negative for two consecutive quarters, a historically-based indicator of a recession, but by some measures the US economy is proving resilient. While big box stores have been hit hard by the shift in consumer behavior, overall levels of consumer spending remain high. The labor market is strong, unemployment is low and the latest macroeconomic data it has given more support to the belief that recession can be avoided. The ISM Non-Manufacturing Purchasing Managers’ Index, released on Wednesday, showed an unexpected rebound. Meanwhile, the stock market just posted its best month since 2020.

Economists say small business sentiment, similar to consumer sentiment, tends to be reactive rather than based on longer-term forecasts, and that can result in sharper, shorter-term swings in sentiment. The current view of the recession on Main Street, as captured by the Small Business Survey, differs significantly from the Fed’s view. But in the details that make up the core confidence index, there is a broader reflection of the economic slowdown. that the Fed is trying to engineer and that the most optimistic economists call a soft landing.

According to SurveyMonkey, which conducts the survey for CNBC, nearly every component of the index worsened quarter over quarter, but the sentiment indicator that looms as the most important this quarter is a weaker Main Street sales outlook. As the Fed tries to cool demand across the economy with higher interest rates, more than a quarter (28%) of small business owners expect their income to decline in the next 12 months, up from 21% of last quarter. This was the biggest change factor in the general sentiment index which hit a record low in the third quarter.

More small businesses are also anticipating job cuts over the next year, 14% to 18% quarter over quarter.

The percentage of small business owners who describe business conditions as good (33%) dropped again, from 36% in the second quarter of 2022. Just over half (51%) of small business owners say they the economy is “poor”, compared to 44% last quarter.

Nearly three quarters (74%) expect higher interest rates to be negative for your business.

The confidence index score was 42 out of 100, up from 46 in the second quarter. The previous low was a score of 43 during the first quarter of the Biden Administration.

Wade said that while many small business owners in the NFIB survey don’t think the recession has started, they are anticipating economic headwinds. “We’ve seen a drop in those expecting higher sales in the next quarter,” he said.

But now, he said, employment and sales in the small business sector are “holding up.”

Partisan politics and economics.

The small business demographic is skewed conservative and the confidence index reflects some partisan sentiment and persistent gaps in politically based survey responses. For example, 69% of Republican small business owners believe the economy is in a recession, compared to 34% of Democrats surveyed. This gap is even greater in how small business owners describe the economy, with 68% of Republicans using the word “poor,” compared to 19% of Democrats.

More concerning for President Joe Biden, however, is the significant percentage of small business owners who identify as Democrats and believe that inflation will continue to rise. While that figure is 89% among Republicans and the partisan divide is wide, more than half of Democrats (51%) agree.

President Biden’s approval rating on Main Street hit the lowest level of his administration, with 31% of small business owners approving of how he has handled the president’s job.

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