70% of small-business owners expect the economic situation in the US to worsen next year, up from 42% in April and equaling a record all-time low in April 2020, according to a survey of more than 600 small-business owners. Businesses conducted in May for The Wall Street Journal by the coaching and peer-advisory firm, Vistage Worldwide Inc.
The measure is part of a broader confidence index that in May recorded its biggest year-on-year decline since the Covid-related shutdowns of April and May 2020. Despite rising prices, the share of small businesses that do expect revenue to increase. The coming year fell to 61% from 79% in May 2020.
“It seems like all of these factors are out of our control, and it doesn’t look like there’s any light at the end of the tunnel,” said Minnie Luong, owner of Chi Kitchen, the maker of kimchi. and other fermented Asian flavored vegetables.
The Pawtucket, RI, company, which has eight employees, has faced a nearly 50% increase in raw material costs and a shortage of glass jars used in packaging. Ms Luong raised prices for wholesale retail accounts by 5% in May. This was the company’s first increase to those customers in its seven-year history, but not enough to cover rising material costs.
Sales have slowed in recent weeks, said Ms. Luong, who is not sure whether May’s price increases, seasonality or a reduction in spending are to blame. “I don’t know what it is, but I don’t like it,” she said.
Small businesses are often the first to feel the effects of an economic downturn. There are reports of a waning of optimism from sectors ranging from manufacturing to consumer products and services.
Drew Bahn, chief executive of Extended Solutions, an Oklahoma City-based manufacturer of expanded metal products used for industrial applications, fencing and other security needs, and patio furniture, said, “Customers who typically buy a truckload are half a truckload. are buying.” , “We’re not losing business. They’re not seeing business.”
Large companies are also feeling the pressure of supply-chain problems, rising prices and labor shortages. Walmart Inc., the country’s largest retailer by revenue, said sales grew in the most recent quarter, but higher product, supply-chain and employee costs consumed profits. Target Corp posted lower quarterly earnings last week as supply-chain costs and inflationary pressures consumed profits. Those chains are also showing signs that consumers are beginning to cut spending, especially on discretionary purchases, as they deal with higher prices for fuel and other expenses.
Small businesses tend to have smaller cash cushions than larger companies, which makes it harder to weather economic storms. Many entrepreneurs say that they are tired of managing COVID-19 and the various economic challenges for more than two years. Government aid programs, which helped ease the economic pain, have largely dried up.
“I call it a roller coaster without the lock bar down,” said Schuyler Northstrom, chief executive of Uinta Mattress Inc., a Salt Lake City mattress maker. Uinta has redesigned its mattresses to reduce production costs, but net profit margins have fallen 5% versus 25% three years ago amid rising costs of materials, labor, rent and transportation. Sales have weakened this year as consumers fall back on buying non-essential items.
The 15-person company received some relief from debt through federal pandemic aid programs, but was denied additional funding that Mr Northstrom said it needed for capital reform and inventory.
“We are at a point where we have to decide whether we continue to operate,” Mr Northstrom said. “We’re going to give it as much as we can.”
Many small businesses remain optimistic or neutral about the outlook amid factors such as low unemployment, strong consumer spending and demand for workers at historic highs. Twelve percent of businesses surveyed said they expected economic conditions to improve and another 28% said they would remain about the same.
“I’m excited about the economy,” said Sally Bryant, whose executive-search and leadership consulting firm in Irving, Texas, has grown from four employees in early 2020 to a dozen today.
COVID-19 continues to be a source of disruption for small-business owners, as cancellations and re-bookings continue to rise due to illness and risk aversion among customers and employees. Labor shortage is another challenge. “If I can hire five people today, I can hire them tomorrow,” said Mindy Goding, co-founder of Abundance Organizing, a provider of home fall and organizing services and senior moves.
Ms. Goding gave workers $25 gas cards in March to help defray the cost of rising fuel prices. About three weeks later, he increased the wages of employees by about 25%. Multiplicity recently increased the rates it charges customers up to 25% to offset higher costs, the company’s first increase since 2018.
Ms Goding said she worries that budget-conscious seniors could scale back their spending due to economic concerns and rising interest rates will slow home purchases, another source of demand. She now expects revenue to grow 5% to 8% this year, rather than the 11% projected earlier that year.
“We no longer spend much time thinking about our long-term goals,” said Ms. Goding. “We’re just trying to get through the next few weeks.”
According to ADP payroll data, employment declined among firms with fewer than 50 employees in both February and April, while head counts continued to rise in larger firms. Twenty-eight percent of small-business owners said hiring challenges had gotten worse or remained the same since January, according to a survey of more than 1,100 small businesses conducted by Goldman Sachs in April.
According to a Goldman Sachs survey, more than three-quarters of small-business owners who reported difficulty recruiting qualified workers said they struggled to compete with larger employers on pay and benefits.
Some entrepreneurs have become more cautious about hiring as economic concerns mount. Andrew Shore, owner of Sea Point Design + Remodel, a residential remodeling firm in Irvine, Calif., had expected sales to rise about 15% this year after climbing more than 40% in 2021. Now, he thinks sales will be close to flat by the end of the year.
“My concern is that things seem to be softening over the past six to eight weeks,” Mr Shore said. “We have several people who have been in the pipeline for months and are surviving.” He noted a client who had recently canceled a $900,000 home renovation because of economy and stock market concerns.
After struggling for months to meet his staffing needs, Mr Shore last week put a temporary halt to hiring. “I really want to see how the next three or four months go by before we hire someone else and get overstuffed instead of goofy,” he said.