Storm clouds are gathering, lots of lightning and also some thunder. Small businesses try to make money while getting it right. But the labor force required is scarce and for many the stocks are not being rebuilt. Vacancies are at the highest level in 48 years. Forty-five percent have open positions and 20% plan (hope) to fill them and increase their sales and profits. Seventy percent successfully raise their selling prices (eg Main Street inflation).
More than 50% report that supply chain disruptions have serious consequences for their operations. The Covid shutdown in China and the war in Ukraine will continue to cause supply-side problems for the rest of the year. Record numbers report that their inventories are too low, an unusual event in the investigation’s 48-year history.
Small business owners see the storm clouds gathering and want to make hay while the sun is shining. A record 48-year-old thinks business conditions will be worse in six months, a challenging second half of the year. The net percentage of owners expecting future real sales volumes to increase was -24%, pessimists far outweigh optimists. Only 6% think the current period is a good time for small businesses to expand. Consumers are beginning to agree as optimism has declined this year despite continued strong spending, but this could be short-lived as inflation is one of the main concerns.
Farmers are faced with significant cost increases. Fertilizer prices (which require natural gas to produce) have risen by 80% in two years. Fuel costs are rising dramatically (gas, diesel, natural gas). Critical exports from Russia and Ukraine are hampered, the president increased the rules on ethanol content for gas, which put upward pressure on corn prices and stocks. Baby food became unavailable without interference from the government of a country other than our own. All this feeds our inflation problem.
Interest rates are rising and the interest cost of paying off our $25 trillion debt (up from $6 trillion over the past two years) is already costing taxpayers a record 2% of GDP. Rates have only just begun to rise as the Fed fights inflation. Small businesses pay the lowest interest rates on loans in over 40 years, but that’s about to change. Oil (gas) prices are at record highs, rising as US production falls (from No. 1 in the world) as the government attempts to cut fossil fuel use. The government wants to raise taxes to fight inflation. Higher taxes reduce private spending, increase unemployment, a painful way to fight inflation!
The stock market has seen a massive drop in recent months, wiping out trillions of (paper) wealth. 401k accounts took a beating. More bad news is coming as the Fed raises interest rates. When prices rise, stock prices fall. Profits are also declining as small business owners can’t keep up with rising input and labor costs. Large companies face the same problems.