Another wave of pessimism on Main Street. Hiring difficulties. Rising costs.
Those are three unavoidable takeaways from recent survey small business survey data. As the Small Business Administration leads celebration of National Small Business Week, these pose a major challenge to the country’s small business recovery.
For most of 2021, the overall sentiment index in the Census Bureau’s Small Business Pulse Survey improved steadily. Survey readings since mid-August, however, show a growing share of small businesses with weekly declines in revenues. At the beginning of September, one-quarter of small businesses said their revenues declined in the prior week. That’s still well below the readings of 2020 and early 2021, when 30 to 40 percent of small businesses were reporting such declines. But, it’s the highest share reporting revenue declines since March 2021.
It’s also worth noting that, for the first time since March, more small businesses had a reduction in employment rather than an increase over the last three weeks.
A plurality of small business respondents (39%) think resumption of their “normal level of operations” will take more than six months. That was an increase from 31% in June. As the Economic Innovation Group put it in their analysis of the Pulse survey: “the Delta variant’s surge has erased all progress on small business recovery expectations made during the spring and early summer.”
Tom Sullivan, vice president of small business policy at the U.S. Chamber of Commerce, says the Census data indicate a “disturbing three-month slide” in the small business outlook. A Wall Street Journal/Vistage survey of small business CEOs in early August found small business optimism had “slipped” this summer. In May, 66% expected improving economic conditions—by August, that had plummeted to 39%, the lowest reading since April 2020.
Likewise, the Small Business Economic Trends report from the National Federation of Independent Business in August found net negative readings for sales expectations.
Small businesses say they are suffering acutely from the Great Resignation—the mass exodus of workers from jobs and, for many, the labor market altogether.
In Alignable’s “Road to Recovery” report, released in August, 59% of small business owners said they were having difficulty hiring and finding new employees, an increase from the prior month. In the August CNBC/Momentive Small Business Index, half of respondents said it was harder to find qualified hires today than a year ago.
These survey readings corroborate the findings of the much larger Small Business Pulse Survey from Census. For the last three weeks, for the very first time in the Pulse survey, “identify and hire new employees” clocked in as the top future need, cited by 40% of small business respondents. Astoundingly, in the accommodation and food services sector, 67% said they had difficulties hiring, compared to 44% in manufacturing. According to EIG, “rapidly shifting fortunes in the accommodation and food services sector are an ominous sign for the small business recovery.”
The NFIB Jobs Report, released in early September, probably puts this in the starkest terms. For 48 years, on average, 22% of small business respondents told NFIB they had job openings they couldn’t fill. That average masks considerable business cycle variance, with the percentage touching single digits during downturns (2008-10) and rising above one-third during expansions.
The last three readings have been all-time highs—and in this latest survey, 50% of small business respondents said they had job openings they couldn’t fill. Most strikingly, nine in 10 respondents who are hiring say they have few or no qualified applicants for their positions.
How are they responding to the challenge? A “net 41 percent reported raising compensation” in attempts to attract workers. That’s a cost increase, which leads to small businesses …
Feeling the Inflation Crunch
Raising wages to attract workers is not a bad thing—it means more for workers. But for small businesses with thin margins (which is many of them), it can mean passing higher costs onto customers. Over half (54%) of respondents to the Alignable survey said their cost of labor is higher than before COVID-19.
The NFIB survey reported all-time high readings for planned and actual raises in compensation, at net 38% and net 27%, respectively. Of those who raised compensation, nearly two-thirds “raised average selling prices … that is a considerable amount of price pressure.”
It’s not just the labor squeeze that’s driving up costs and thus prices. Supply chains are stretched and input costs are rising. Small businesses are feeling the pinch on all sides.
In the Census Small Business Pulse Survey, the share of small businesses reporting domestic supplier delays has steadily risen. Through Phases 2, 3, and 4 of the survey, the percentage experiencing domestic supplier delays consistently hovered around 28% on a weekly basis. Since late May 2021, the average share has been 38%. And in the last three weekly readings, 42% of small businesses faced domestic supplier delays.
In the Alignable survey, 83% of respondents said they now face a higher cost of supplies and inventory compared to pre-COVID levels. The CNBC/Momentive survey reports that 70% of small businesses are paying higher supply costs, and 39% are raising prices in response. Another 38% said they plan to raise prices if supply costs continue to go up. According to the WSJ/Vintage survey, 61% of small business anticipate that they will raise their prices by the end of 2021.
National Small Business … Squeeze?
It’s never easy to be an entrepreneur or small business owner. Today, it’s extremely difficult. The SBA has no shortage of issues to deal with and it’s not entirely clear how it might help small businesses address those discussed here. What is clear is that we will not enjoy complete economic recovery without healthy and vibrant small businesses. Here’s hoping that National Small Business Week prompts us to focus even more on helping them.