Persistent inflation dogs small business confidence: US Chamber

Dive Brief:

• Persistent inflation posed the biggest concern for small business owners during the second quarter, eroding their confidence, the U.S. Chamber of Commerce found in a survey.
• Concern about price pressures exceeded worries among small businesses over supply chain challenges, borrowing costs, revenue trends, a shortage of talent in the labor pool and the cost of employee benefits including health care, the chamber said. Fifty-seven percent of business owners cited inflation as their No. 1 worry, a higher proportion than in Q1.
• Sixty-nine percent of company owners said their small business is in good health, 66% expect to grow revenue during the next year and 35% expect to expand staff during the same period, the chamber said. At the same time, only 33% of small business owners rate the local economy as “good,” a slump of 8 percentage points since Q1.

Dive Insight:

Consumer prices rose last month at a lower-than-forecast annual rate of 3.5% from a 4.2% pace in May, the Bureau of Labor Statistics said Tuesday, moments before Federal Reserve Chair Kevin Warsh pledged to slow inflation to the central bank’s 2% goal.

A 5.7% decline in energy prices — including a 9.5% slump in the price of gasoline — accounted for much of the decline in price pressures in June, the BLS reported. Consumer prices excluding volatile food and energy were unchanged last month and rose 2.6% over the 12-month period.

Although inflation has cooled, the Conference Board’s Leading Economic Index fell by 0.2% in June to 99.1 following a 0.1% gain in May.

Nevertheless, the LEI’s six- and 12-month growth rates were stable, Justyna Zabinska-La Monica, senior manager for business cycle indicators at the Conference Board, said Monday in a statement.

“Consumer spending is weakening, but strong business investment related to AI is expected to support economic activity while inflation continues to improve,” she said, noting that the Conference Board raised its forecast for gross domestic product growth this year to 1.9% from 1.8%.

Expectations for improved sales and business conditions jumped in June, helping push up the Small Business Optimism Index to 97.4, an increase of 2.1 points from May, the National Federation of Independent Business said.

Still, the index remained below its historical average for the fourth consecutive month, the NFIB said Tuesday, in line with the weak confidence flagged by the U.S. Chamber of Commerce.

 “Current economic conditions present small business owners with both encouraging developments and ongoing challenges,” NFIB Chief Economist Bill Dunkelberg said in a statement. 

“Lower fuel costs provide welcome relief for businesses as well as consumers, with firms anticipating improved operating conditions over the next six months,” he said.

“While there have been improvements in the overall environment, high interest rates and modest economic growth are causing owners to approach hiring and capital spending with caution,” Dunkelberg said.

Interest rates will probably rise later in coming months, according to traders in interest rate futures.

Traders on Monday saw 83.1% odds that the Fed will raise the federal funds rate by at least a quarter percentage point by the end of this year, according to the CME Group’s FedWatch tool.