Federal Reserve Chairman Jerome Powell said Friday that the central bank’s fight against inflation will result in “pain” for the economy, and small businesses are now feeling that pain on both sides of the battle. .
Inflation has been a top concern for small businesses for some time, as high prices for raw materials, labor, energy and transportation squeeze margins. Higher rents and landlords feeling more positive as the country moves away from the peak of Covid are exacerbating the blow from inflation being felt on Main Street. Yes, but that’s because the Fed is deliberately suppressing demand and small business owners expect lower sales.
what will it all be?According to New National Small business owner survey by Alignablethe proportion of small business owners who were unable to pay their full rent in August increased significantly in August.
Nationwide, soaring apartment rents are one indicator of inflation. It may have peaked recently. But Alignable’s data shows that the small business rent inflation crisis is actually getting worse. 40% of small businesses say they won’t be able to pay their rent in full this month, up 6% month-over-month and setting a record for 2022.
“I have been following this closely every month since March 2020 and I am in shock,” said Chuck Casto, Alignable’s head of research and communications.
The proportion of small business owners unable to pay rent has not been this high since March 2021. “This is what we would have expected in the middle of a pandemic when a third of places were closed and everyone was wearing masks, or not going out to restaurants,” Kast said. I was.
The Alignable poll was conducted from August 13th to August 22nd among 7,331 randomly selected small business owners.
With the small business rent crisis, this year’s holiday quarter is likely to be the most crucial time of all time for consumer-facing Main Street entrepreneurs and a crucial time to survive.
It’s nothing new that inflation is a much bigger concern on Main Street than COVID-19, but until inflation “moderately eases,” the costs of all small businesses will continue to fall on Main Street’s separate survival. Kast said it would lead to a crisis involving Worried about rent.
45% of small business owners surveyed by Alignable say their rent is at least 50% higher than pre-Covid. 24% said their landlord doubled their rent. 12% say he pays more than three times now.
Alignable’s data also shows that many small businesses are still struggling to return to pre-corona earnings levels, just as the Fed is taking steps to slow overall demand. increase. Casto said Alignable hopes to see a decline in the number of small business owners who say they haven’t returned to pre-Covid sales, but that’s not the case right now. According to Alignable, last December, 43% said they were “fully back” during the key holiday season for many small businesses. “Now he’s at 23%, and it’s just slipping away. Even people who thought he came out of the woods in December or January suddenly didn’t.”
According to Alignable, this is the worst metric in over a year.
Alignable data is Recent CNBC|SurveyMonkey Small Business Survey Atmosphere, indicated that small business confidence hit a record low. Kast says rent data is important to get a complete picture of the financial health of small businesses.
Alignable asked small businesses whether inflationary pressures, including rent increases, could jeopardize their ability to remain open for business over the next six months. That data point he hasn’t changed much in August, but remains uncomfortably high at around 47%-48%. Of those, 20% are “extremely concerned”.
Just this past spring, that number was as low as 28%.
Kast said this, along with data on the ability to pay rent, is an important number to watch in the coming months.
“Many of them have not yet recovered from Covid. Add to that inflation and whether you view this as a recession or not, the economy is slowing and consumer spending is declining,” he said. rice field.
According to CNBC’s Small Business Survey, expectations of lower sales are the biggest driver of quarterly confidence declines, with many small business owners believing the recession has already begun.
“Things are definitely going backwards in terms of store activity and customer numbers,” said Casto. It doesn’t take into account the extra costs it has created and the slowdown in the economy.
It’s not all bad news on Main Street. Several recent measurements show that many SMEs, especially in the services sector, are benefiting from a shift in consumer behavior from buying goods to buying services. That’s what Intuit’s data shows, SMEs are its largest business field. But Alignable’s data on rent shows that the effects of inflation are spreading across sectors of the small business economy, even though some sectors have been hit harder than others. In real estate, 40% of his small businesses said he couldn’t pay his rent in August, down from 18% last December.
“Many storefronts have disappeared, even in flashy cities,” Kast said. “We’re not up to the ghost town level, but I’m worried..we’re on another level of ‘to pay the rent or not to pay the rent’….it’s a much bigger question .
Small businesses facing a rent crisis have options.one Negotiation with landlordbut it gets harder the farther from the peak of Covid.
“The landlord let it slip for a year and a half and feels like he did everything he could, but now that it’s been two years, he needs to start asking for money,” Custo said. They are paying the mortgage because they could lose the building.”
Comments from small business owners surveyed by Alignable show landlords’ patience over the past two years has waned, with many fearing asking landlords for more rent relief at this point. . But the survey also shows that many landlords would rather their tenants make a good faith effort to pay rent and catch up on overdue rent than face an empty storefront during an economic slowdown. I’m here.
“Sometimes these landlords are happy to fill the place up even if they only get a fraction of the rent. That’s better than not getting any at all.
For business owners, he recommends at least considering the ability to go fully remote, taking that overhead off real estate and applying it to other areas of the business. This is a move that more of his B2B owners are making, according to comments Alignable received in its survey data.
Due to this situation, Q4 will always be the most important for B2C SMEs, with rent currently the number one or two issue, and will be even more important this year. The small business always considers the holiday season sale to be his biggest sale period of the year.
As the Federal Reserve seeks a “soft landing” for an economy it claims is not in a recession, a continued low inflation trajectory will push small business costs across the board lower, lowering the main potential can be an equilibrium point. Margins will be less impacted and sales may decline as the economy weakens. Small businesses have turned around in the last few years during the pandemic, taking on side gigs (or multiple) to keep their finances working, and in some cases retiring sooner than expected (these numbers are also increasing). are available). But if Main Street has a soft landing, it’s unlikely to become apparent until the end of the year.
“We’re hearing from small businesses that they’re counting on Q4,” Casto said. “The fourth quarter really says a lot. If these numbers don’t improve in the fourth quarter, I don’t want to say what will happen based on what I’m seeing. It will be a “successful” situation. for most of them. ”