- Confidence among small businesses hit a post-pandemic high in recent weeks as fears of recession waned, the U.S. Chamber of Commerce and MetLife found in a quarterly survey.
- Sixty-six percent of small businesses said they are in good financial health and 72% report solid cash flow, according to survey results that bode well for the economy. Small businesses generate about 44% of gross domestic product, nearly half of private sector workers and, from 1998 through 2021, created 63% of net new jobs, according to the Small Business Administration.
- “Main Street employers are showing remarkable resiliency in the face of high inflation and a shortage of workers,” Tom Sullivan, the U.S. Chamber’s vice president of small business policy, said in a statement. “With fears of a recession likely in the rearview mirror and inflation starting to ease, small businesses owners are feeling a lot better than they were a year ago.”
Several private- and public-sector economists have marked up their forecasts for economic growth in recent weeks.
Moody’s Analytics on Thursday forecast GDP will grow 2.1% this year and 1.4% in 2024 — both 0.1 percentage point higher than August projections.
“The U.S. economy continues to show significant resilience,” Moody’s said in a research note. “Economic data for the third quarter have been surprisingly strong,” Moody’s said, noting robust consumer spending and progress by the Federal Reserve in slowing inflation without quashing the expansion.
CEOs also project 2.1% economic growth this year, an increase from 1.5% in a second quarter survey, the Business Roundtable found in a Q3 survey of 143 chief executives.
The Atlanta Fed forecast on Tuesday that the economy during Q3 will grow at a 4.9% annual rate, a one percentage point increase from its Aug. 1 estimate.
The following day the Fed released median projections showing that central bank officials expect GDP to increase 2.1% this year and 1.5% in 2024. In June, as Fed economists abandoned a recession forecast, central bank officials forecast just 1% expansion for 2023 and 1.1% growth for next year.
“The economy has remained strong as the FOMC [Federal Open Market Committee] has tightened monetary policy,” Fed Governor Michelle Bowman said in a speech Friday, noting that “real gross domestic product has been growing at a solid pace.
“Consumer spending has been robust, and the housing sector appears to be continuing to rebound,” she said. “The most recent employment report showed a labor market with solid job gains.”
The Fed, in order to curb inflation to its 2% goal, will probably need to push up the federal funds rate from its current range of 5.25% to 5.5%, Bowman said. “Further policy tightening will be needed to bring inflation down in a sustainable and timely manner,” she predicted.
Boston Fed President Susan Collins in a speech Friday aligned with many of Bowman's views.
“Monetary policy has tightened considerably to date, but economic activity has been resilient — and it may be taking longer than usual to see the broader economic impact of monetary policy actions,” Collins said.
“I expect rates may have to stay higher, and for longer, than previous projections had suggested, and further tightening is certainly not off the table,” she said.
Optimism that the Fed will sustain its most aggressive tightening in four decades without triggering a recession is far from universal.
During the past six weeks, rising energy prices, increasing long-term interest rates and a strengthening dollar have raised the odds that the highest benchmark interest rate in 22 years will throttle economic growth, former Fed Governor Kevin Warsh said Thursday at an American Enterprise Institute webinar.
“None of that is good for a soft landing,” according to Warsh, a visiting fellow at the Hoover Institution, adding, “I don’t think it should be necessary to raise rates.”
Even with price pressures steadily easing since June, 52% of small businesses still identify inflation as their biggest challenge, the U.S. Chamber said, citing the survey of 750 owners of small businesses.
In a sign of persistent price pressure, more than half (56%) of respondents said they have difficulty keeping pace with employee pay expectations, the U.S. Chamber said.
Small business owners surveyed by the National Federation of Independent Business hold a gloomier view of the economy.
Two out of five small businesses said they could not fill job openings, and their expectations for business conditions during the next six months persist at a level usually associated with a downturn, the NFIB said this month.