Most small businesses plan to avoid new investments as they see the nation’s economy weakening and inflation sapping their profits, the Chamber of Commerce reported Wednesday.
Only 20% of small business owners surveyed in the first quarter said the economy is in good health, down from 27% last quarter, the business lobbying group said.
And just 38% plan to increase investment over the next year, compared to 47% at the end of last year, according to the quarterly MetLife/Chamber of Commerce Small Business Index.
“This quarter, small businesses’ concerns over inflation are soaring and their view of the broader economy is darkening, though they still report that their own businesses are in good health,” said Tom Sullivan, the chamber’s vice president of small business policy. “Small business owners are pulling back a bit on spending as they see storm clouds in the economy appearing ahead.”
In a trend the chamber has dubbed “secondhand pessimism,” most owners nonetheless described their small business as being in good health (63%) with a comfortable cash flow (64%). And 69% said they retained the same number of employees over the past year, despite the tight labor market.
The index found their overall sentiment toward the economy remains well below pre-pandemic levels and has started to slide again after stabilizing briefly at the end of last year.
A near-record high 54% of small businesses called inflation their top challenge, up from 53% last quarter. It is the fifth straight quarter where inflation has led the list of their worries.
The owner of Henry’s House of Coffee in San Francisco said the rising costs of coffee beans, labor and gas and electricity keep forcing his menu prices upward.
Owner Hrag Kalebjian noted that the annual increase in the Consumer Price Index on July 1 will trigger an increase in the city’s minimum wage for hourly workers from $16.99 to $18.07, or 6.36%.
“The challenge is keeping up with these costs and constantly raising my prices,” Mr. Kalebjian said. “It seems as though I can’t keep up.”
Small businesses responding to the first quarter survey said their access to capital has declined over the past five years.
About half (49%) of owners described their access to capital financing or loans as “good,” down from 54% in the second quarter of last year and 67% in the second quarter of 2017.
Among businesses with fewer than five employees, 75% reported using personal savings to finance their business, compared to 59% each of those with 5-19 or 20-500 employees.
