Dive Brief:
- Inflation persists as the No. 1 concern among small businesses, the U.S. Chamber of Commerce said, noting that price pressures have remained a top challenge for eight consecutive quarters.
- Still, as inflation runs well above the Federal Reserve’s 2% target, 73% of small business owners expect their revenue to increase during the next year, a record high since the U.S. Chamber and MetLife began the survey in 2017.
- “Main Street employers are showing confidence and resiliency in the face of persistent inflation,” Tom Sullivan, vice president of small business policy at the U.S. Chamber, said in a statement. Their “comfort with cash flow remains high and is a key reason why small business owners are bullish about their ability to meet customer demand.”
Dive Insight:
Inflation has eased in recent months after rebounding during the first quarter above the expectations of Fed policymakers.
The central bank’s preferred inflation measure — the personal consumption expenditures price index — rose last month at a 2.6% annual rate. It will likely fall to “the low 2s” next year and hit the central bank’s 2% target in 2026, Fed Chair Jerome Powell predicted Tuesday during a panel discussion.
“We’ve made quite a bit of progress in bringing inflation back down to our target,” Powell said. Still, before trimming borrowing costs, policymakers “want to be more confident that inflation is moving sustainably down toward” the Fed’s target, he said.
More than half of small businesses (55%) cite inflation as a top challenge, with those in services and manufacturing finding it most onerous, the U.S. Chamber and Metlife said. Revenue growth was deemed the No. 2 challenge by small businesses (26%), followed by rising interest rates and the affordability of employee benefits or health care.
Recent data suggest that the highest federal funds rate in two decades is slowing the economy and cooling both inflation and the labor market without triggering a downturn or widespread layoffs.
The service sector slumped in June because of “notably lower business activity, a contraction in new orders for the second time since May 2020 and continued contraction in employment,” Steve Miller, chair of the Institute for Supply Management Services Business Survey Committee, said Wednesday in a statement.
The ISM’s gauge of services fell 5 points to 48.8, the institute said. A reading below 50 signals the sector is shrinking.
During the week ended June 22, recurring claims for unemployment benefits increased for the ninth straight week, rising to 1.86 million and the highest level since November 2021, the Labor Department said Wednesday.
Also, private sector employment expanded in June by 150,000 jobs, a moderate pace, the ADP Research Institute reported Wednesday.
“Had it not been for a rebound in hiring in leisure and hospitality, June would have been a downbeat month,” ADP Chief Economist Nela Richardson said in a statement.
Following the release of the various data on Wednesday, the Atlanta Fed marked down its forecast for second quarter gross domestic product growth to 1.5%, on an annualized basis, from 1.7% on July 1.
