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After years of struggling through COVID-related supply disruptions, inflation, hiring difficulties, rising borrowing costs, and even a surge in retail theft<\/a>, new data suggests the mood of many small-business owners is hitting bottom.<\/p>\n The National Federation of Independent Business\u2019s (NFIB) Small Business Optimism Index<\/a> fell 0.9 points to 88.5 in March, marking the lowest level of small-business optimism in the U.S. since December 2012. March was also the 27th consecutive month when the NFIB\u2019s Small Business Optimism Index came in below its 50-year average of 98.<\/p>\n \u201cOwners continue to manage numerous economic headwinds,\u201d NFIB chief economist Bill Dunkelberg said, noting that \u201cinflation has once again been reported as the top business problem on Main Street.\u201d<\/p>\n For Ed Yardeni, the veteran Wall Street economist and investment strategist who now runs Yardeni Research, \u201cit was a pessimistic report overall,\u201d leading him to ask (rhetorically) in a Tuesday note: \u201cWill depressed small business owners depress the economy?\u201d<\/p>\n The answer? Their pessimism is a cause for concern, but not yet a harbinger of a recession.<\/p>\n Small businesses employed 61.6 million Americans in 2023, and they typically generate roughly 45% of U.S. economic activity, according to the Small Business Administration<\/a>. That makes their health critical to the overall state of the U.S. economy, even if large publicly traded companies tend to get more attention.\u00a0<\/p>\n Still, despite the recent dive in small business owners\u2019 optimism, Yardeni, who has maintained<\/a> a non-consensus optimistic outlook for the economy and markets in recent years, implied in his Tuesday note that the details of the NFIB\u2019s Small Business Optimism Index reveal we\u2019re in a painful period, but not a recessionary slowdown just yet.<\/p>\n Yardeni\u2019s view is based on the fact that small business owners are mostly concerned about issues that illustrate the economy is running hot, not cooling rapidly. For example, a quarter of all small business owners said inflation was the single most important problem they faced, as seen in high labor and input costs. That was up two percentage points from February, but still well below the all-time survey high of 41%.\u00a0<\/p>\n Small businesses\u2019 inflation issues mirror the acceleration in the increase of the consumer price index this year, from a 3.1% annual rate in January to 3.5% in March. But inflation typically doesn\u2019t rise during economic slowdowns\u2014in fact, it\u2019s often a sign that the economy is growing quickly, with companies being forced to raise prices. The NFIB\u2019s survey shows that could be what\u2019s happening today. In response to higher costs, a net 28% of small businesses said they were raising prices in March, and 43% reported higher average selling prices.<\/p>\n Finding talent was small business owners\u2019 second major concern in the NFIB survey, with a net 37% saying they had job openings they couldn\u2019t fill. Again, that\u2019s a sign that the labor market remains tight, not that a wave of recession-induced layoffs is on the way.<\/p>\n Plus, just 8% of small business owners said that \u201cpoor sales\u201d were their number-one concern, compared to the all-time survey high of 34%. And just 4% of small businesses marked interest rates as their top concern, compared to a survey high of 37%. This illustrates that consumer demand is still strong in the economy, and rate hikes aren\u2019t weighing on small businesses too heavily for now.<\/p>\n \u201cWe would be more concerned about the recessionary implications of the latest NFIB survey if more small business owners were complaining about poor sales and interest rates,\u201d Yardeni wrote of the data.\u00a0<\/p>\n Still, looking forward, the net percentage of small business owners who expect higher sales volumes fell eight percentage points month over month in March, to a net negative 18%. \u201cThe small business sector is showing signs of a potential slowdown in economic activity with net sales expectations falling,\u201d NFIB researchers said of their report.<\/p>\n The recent pessimistic survey from the NFIB also follows their monthly jobs report<\/a> from last week, which showed small-business hiring plans were the weakest since May 2020. And with inflation still weighing on small businesses, 55% of owners reported lower profit margins in 2023, according to a December Goldman Sachs survey<\/a> of over 14,000 small businesses.<\/p>\n Combined, these issues are evidence of the painful period small-business owners are navigating, and why they\u2019ve become so pessimistic. But for Yardeni, \u201cthe solid performance of the economy has been at odds with the mounting pessimism of small business owners since early 2022.\u201d\u00a0\u00a0<\/p>\n Yardeni still believes the U.S. will avoid a recession in 2024, and he even sees a \u201cRoaring 2020s<\/a>\u201d economy, in which inflation fades and new technologies like AI help boost the economy and markets, as the most likely outcome moving forward. With total household net worth hitting a record $156.2 trillion in late 2023, and baby boomers holding a record $76.2 trillion of that wealth, Yardeni argues, there is plenty of money out there to support the economy and markets for years to come.\u00a0<\/p>\n \u201cThis helps to explain the resilience of the economy and why there hasn\u2019t been a consumer-led recession over the past two years, as was widely feared,\u201d he wrote in a Monday note, adding: \u201cThe Baby Boomers watched a lot of Star Trek during the 1960s. They certainly took to heart Spock\u2019s mantra \u2018Live long and prosper.\u2019 He should have finished the thought with \u2018Then retire and spend it all before your expiration date.\u2019\u201d<\/p>\n<\/div>\n\nThe pessimistic backbone of the American economy<\/h2>\n
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