by Daniel Newman
The Census Bureau’s Business Trends and Outlook Survey (BTOS) provides biweekly insights into the state of the country’s small businesses along with expectations about their performance six months into the future. Across the United States, 33 million small businesses employ just under half of the country’s workers. This analysis covers some of the major trends in the small business economy since the survey debuted in the summer of 2022.
Small businesses across the United States reported healthier conditions in recent weeks amid a prolonged period of economic turbulence. Survey results collected by the Census over the first half of March reveal small businesses largely anticipate a rosy economic picture six months into the future, as well—a potential sign of optimism that the economy would manage a soft landing and avoid a much-feared recession. This relatively positive sentiment held even as the Fed continued down its path of monetary tightening, although the latest survey results have yet to reflect the uncertainty injected into the economy by the recent banking crisis and latest Fed interest rate hikes. These developments could make it much more difficult for small businesses to borrow money amid bankers’ moves to curtail lending activity and shore up their balance sheets.
Major pandemic-related difficulties that plagued small businesses last summer have subsided considerably
Many major operational concerns stemming from supply chain bottlenecks are receding into the rearview mirror. The easing of domestic supply chain delays—which affected more than one in three small businesses last July—have seen the most dramatic improvement, now afflicting just one in five. Small business customers have also benefited from fewer production and shipping delays in recent weeks.
Business owners expect these concerns will continue to fade in the coming months, as 80 percent expect no changes in the amount of time it takes to get materials from suppliers six months from now. In a similarly positive sign, just 11 percent anticipate it will take longer to get supplies six months from now—down by half from last year’s peak and the lowest share yet in the survey.
The search for workers has eased, with expectations for continued improvement in coming months
On the hiring front, improvements largely mirror those seen with other ongoing challenges. A hiring bottleneck that stymied business operations last year has visibly eased, as just over 20 percent of small businesses reported hiring difficulties in the latest survey—down from over one-quarter last summer. The outlook for future hiring activity also appears to be brightening, as just under 31 percent anticipate that they will face difficulties hiring paid employees in the future, a drop of around 6 percentage points since last summer.
Nearly one in five small businesses expect to add employees over the coming six months. At the same time, fewer business owners anticipate needing to shrink payroll numbers or employee hours, a sign that employment levels may tick up across the small business sector in the coming months. Just 7.6 percent expect that they will have fewer employees six months out, and only 10.1 percent think that the number of hours employees work will have decreased—the best results to date for both survey questions.
As inflationary pressures slowly tick down, fewer cost increases are being passed onto consumers
The effects of stubbornly high price increases on the small business sector are slowly receding, a trend consistent with the easing of inflationary pressures economy-wide. Fewer business owners are reporting price increases for their purchases, as well as for what they charge consumers. For the first time in the survey, less than half of small businesses reported facing an increase in the cost of goods and services they must purchase for their operations. Businesses often must resort to passing these costs along to consumers, and the share of businesses resorting to that course of action has also declined significantly since last summer.
In an important marker that the Fed’s battle against inflation may be succeeding, just over half of small businesses expect to pay more for the necessary goods and services required to operate their businesses in the coming months—a low point in the survey. While still high, this figure is down from two-thirds last summer. This trend is mirrored on the consumer side as well, as the share of small businesses expecting to raise prices on customers six months in the future reached 34 percent, also its lowest point in the series and down from a high of nearly 45 percent in July 2022.
Expectations of an impending economic downturn have been diminishing as small businesses anticipated steady demand in the coming months
Small businesses appear to be cautiously optimistic about their standing in the coming months, as positive sentiments about future performance hovered near their highest point in the series. The time horizon over which small businesses can confidently plan their operations varies, but most are confident they can predict performance at least 4-6 months out, and nearly two-thirds of small businesses expect future consumer demand to hold relatively steady over that time. This comes as just 13 percent felt that demand would decrease, a significant improvement relative to last summer’s share of 19 percent. These sentiments are shared across most business sectors, where some of the biggest improvements came in sectors such as Arts, Entertainment, and Recreation; Accommodation and Food Services; and Real Estate.
Small businesses with fewer employees are the least likely to characterize their performance as above average
Nearly one-third of all small businesses are experiencing “above average” or “excellent” performance today—a share that has held remarkably steady since last summer—but there is a notable gap in performance depending on the size of the business. Small businesses with four or fewer employees face the greatest challenges to ensuring their survival and consistently report weaker levels of performance relative to their larger peers.
A healthy small business sector remains essential to a strong U.S. economy, and current sentiment offers hope that the country is moving in the right direction. Signs of economic overheating are receding while the supply and labor bottlenecks that fueled inflation are also easing. Amid these positive developments, small businesses foresee stability ahead rather than a coming recession that could lead to a dramatic curtailment of economic activity. Questions remain, however, whether inflation will continue to recede and whether the banking sector remains stable going forward.
