“People are still spending money”: Small business owners are worried about a recession, but many are confident they will survive. that’s why

From Zoe Khan

Rising interest rates, sustained inflation, labor shortages and supply chain disruptions add to the challenges facing small businesses

Small business owners say they have another element to add to their list of concerns: the recession.

More than four out of five small business leaders say they worry the recession will hit the economy soon and affect their business, according to a new study by online business banking platform Kabbage, an American Express (AXP) current account service.

The study is the latest in a Kabbage report on small business recovery. It gathered responses from 550 small business leaders with less than 500 employees in various industries in early April.

Small business leaders are not alone. Wall Street forecasts from JP Morgan & Chase (JPM) CEO Jamie Dimon and Goldman Sachs (GS) CEO David Solomon to investor Michael Novogratz see economic turmoil ahead as the US Federal Reserve tries to create a “soft landing ‘while curbing inflation. A study by the Financial Times in early June showed that the majority of economists predict that the recession will begin in 2023.

The US economy contracted in the first quarter of the year and is about to grow by less than 1% for the second, according to Wall Street estimates. Some economists predict that this trend points to further evidence of an impending recession, defined as two consecutive quarters of declining economic growth.

At the end of May, the cost of living increased by 8.6% compared to a year ago. With inflation at its 40-year high, the central bank has implemented a series of interest rate hikes that could put interest rates on federal funds between 3.25% and 3.5% by the end of the year, according to Bankrate, a personal finance website. The Fed has kept interest rates close to zero as a way to stimulate economic activity since the beginning of the coronavirus epidemic.

After the last increase of 75 basis points, taking out a business loan will be more expensive. Businesses are facing a double-edged sword: among those small businesses that have applied for a loan or plan to do so in the next six months, almost half say they plan to use the money to cover inflation-related costs, according to to the Kabbage study.

However, Kabbage also found that small business owners could learn from the pandemic to help them prepare for a recession. About 80% of respondents are confident that their business will survive a potential recession and said that the main reason they feel this way is that the pandemic has helped them find a greater sense of resilience and prepare. for any impending economic turbulence.

“Small businesses are traditionally optimistic in difficult times because they are comfortable making the necessary changes to persevere,” said Gina Taylor Cotter, executive vice president and general manager of US Small Business Banking at Kabbage. She said various economic factors have made small businesses prioritize branding, marketing and e-commerce to stand out from the competition.

“Hopefully, if there is a recession, it will probably be mild, given that the fundamentals of the economy are pretty good,” said Holly Wade, executive director of the National Federation of Independent Business (NFIB) research center during a recent NFIB event. “People are still spending money. Most people who want a job have a job. All these factors are very different from the financial crisis of 2007, when we had a housing bubble and other fundamental problems.”

-Zoue Khan

 

(END) Dow Jones Newswires

06-23-22 0918ET

Copyright (c) 2022 Dow Jones & Company, Inc.

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