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Confidence on Main Street hits record low on belief that recession is here

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Small business confidence has hit an all-time low as a majority of Main Street anticipate runaway inflation and the inability of the Federal Reserve to engineer a soft landing for the economy.

In fact, a majority (57%) of small business owners who took part in the CNBC/SurveyMonkey small business survey in Q3 2022 believe the recession has already begun, and another 14% believe the economy will slow down by the end of the year. I anticipate setbacks.

CNBC/SurveyMonkey’s online survey was conducted July 25-31, 2022 with a national sample of 2,557 would-be small business owners.

Main Street pessimism is more prevalent than the general population, according to the study, which includes a survey of nearly 12,000 non-business owners. 45% of this group believe the US economy has entered a recession.

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

Input costs, energy prices and labor inflation were the top concerns for small business owners throughout the year, but they continue to gain ground in the minds of entrepreneurs. The third quarter survey found that 43% of small business owners said inflation was the biggest risk to their business today, up again from 38% last quarter, the highest number in the past quarter. It reached its highest point in four quarters of the survey. .

Only a minority of small business owners (26%) are confident the Federal Reserve will be able to handle inflation well, which is in line with Q2 survey results.

The Federal Reserve continues to send the message that inflation is a top priority, saying interest rates will continue to rise until prices are brought under control, but senior Fed leaders, including Chairman Jerome Powell, He said he did not believe the economy was in recession.

St. Louis Fed President James Bullard told CNBC on Wednesday, “We are not in a recession right now.

Negative GDP for the second quarter in a row is a historical indicator of a recession, but some indicators prove the resilience of the US economy. Large retailers have been hit hard by changes in consumer behavior, but overall consumption levels remain high. The labor market is strong, the unemployment rate is low, and the latest macroeconomic data are more supportive of the belief that a recession could be averted. The ISM non-manufacturing Purchasing Managers Index released on Wednesday showed a surprising rebound. Meanwhile, the stock market just had its best month since 2020.

Economists say that SME sentiment, like consumer sentiment, tends to be more reactive than based on long-term forecasts, and as a result sentiment can change more sharply and in the short term. said to be sexual. Main Street’s view of the current recession captured by the Small Business Survey is very different from the Fed’s view. But the details that make up the Core Confidence Index are a more general reflection of the economic slowdown the Fed is about to plan, in what more optimistic economists call a soft landing.

Nearly every index component deteriorated quarter-on-quarter, but the biggest confidence indicator this quarter was the weak Main Street sales outlook, according to SurveyMonkey, which conducts the CNBC poll. More than a quarter (28%) of small business owners say they expect 12% over the next quarter, up from 21% last quarter, as the Federal Reserve (Fed) seeks to cool demand across the economy with higher interest rates. We expect revenue to decline in the next few months. This was the biggest mover in the overall confidence index, which hit a record low in the third quarter.

Also, more small businesses expect to cut headcount next year, up from 14% to 18% quarter-on-quarter.

The share of small business owners who said the business environment is good (33%) has fallen again from 36% in Q2 2022. % Last quarter.

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

The Confidence Index score was 42 out of 100, down from 46 in the second quarter. The lowest score so far was 43 points in the first quarter of the Biden administration.

Partisan politics and economics

Small business demographics are conservative, and the confidence index reflects partisan sentiment and persistent gaps in politically driven survey responses. For example, 69% of his Republican small business owners believe the economy is in recession, compared to just 34% of his Democrats. The gap is even wider in how small business owners describe the economy, with 68% of Republicans using the word “poor” compared to 19% of Democrats. %is.

But more troubling for President Joe Biden is that a significant percentage of small business owners are Democrats and believe inflation will continue to rise. That figure is 89% for him in Republicans, with wide partisan differences, but more than half of Democrats (51%) agree.

President Biden’s approval ratings on Main Street reached the lowest levels of his administration, with 31% of small business owners approving of how he handled the presidency.

Although 81% of small business owners who are Democrats support Mr. Biden, polls show the president has a majority of his party (often over 90%) in this period of high inflation. It points out that it expects to express And, as the CNBC/SurveyMonkey Small Business Survey showed earlier this year, Biden’s approval ratings won’t improve unless inflation falls. Biden’s approval rating among key swing voters who identify as independents is his 29%.

Only 9% of Republicans approve of Biden’s handling of the presidency.