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Politics and inflation tighten as small business confidence grows slower than markets and the economy

Confidence among small business owners has barely increased as fears over inflation, hiring costs, tax hikes and partisan politics weigh on Main Street as it shows signs of returning to low levels. ‘before the pandemic.

According to a CNBC | SurveyMonkey Small Business Survey conducted last month, 64% of entrepreneurs say their business can survive for more than a year under current business conditions as the wave of closures and bankruptcies that have crushed many businesses from the main street tapers off and the country emerges from Covid -19. This is up from 55% in the first quarter. The survey also found that 34% of business owners believe the current business conditions are good.

The survey’s small business confidence index climbed to 45 in the current quarter, from a record low of 43 in the first quarter. To be sure, it’s still a negative sentiment read.

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“In the middle, the confidence is appropriate, because there is still a lot of unknowns about the recovery,” said Karen Kerrigan, president of the Small Business & Entrepreneurship Council. “Many are still digging … are paying rent arrears, returning to normal income levels.”

The percentage of business owners expecting a drop in income over the next year fell to 18%, from 27% in the previous quarter. Less than half, 46%, expect revenue growth.

Biden Infrastructure Plan and Main Street

The US economy is recovering strongly as several rounds of stimulus checks have boosted consumers. President Joe Biden’s infrastructure plan and spending priorities are also expected to boost the economy. But opinions on the president’s ambitions are mixed on Main Street.

While just over half of small business owners support Biden’s infrastructure legislation, there is a division on Main Street due to party affiliation. According to the survey, 97% of small business owners who identify as Democrats support the U.S. jobs plan. This drops to 55% among independents and 23% among Republicans and GOP supporters.

The tax policy needed to fund the infrastructure plan divides small business owners, with 39% of entrepreneurs in favor of paying for the measures by raising the corporate tax rate to 28% from 21%, while 59% disapprove. The partisan divide here is also wide: 85% of Democrats and skinny Democrats approve of a corporate tax hike, with just 38% of independents and just 13% of Republicans and GOP supporters.

“We see this as a fragile recovery and these proposals certainly instill a little more uncertainty in it,” said Kevin Kuhlman, vice president of federal government relations at the National Federation of Independent Business. The most recent NFIB poll found that small business confidence has returned to its historic average after being below that level for almost a year.

Certain industries within the small business community are expected to benefit from infrastructure spending, such as construction and Internet services. But Biden’s alignment with the unions could dampen expectations of small business owners about the plan’s potential benefits.

“Most businesses are not union businesses,” Kerrigan said, although she added that most view infrastructure spending positively.

Inflationary fears, hiring

As businesses try to get back to normal, the search for workers and supply chain issues are still obstacles to operating at full capacity.

A quarter of small businesses expect their workforce to increase next year, up from 19% in the previous quarter. However, 24% have open positions that have not been filled for at least 3 months, up from 16% in the first quarter of 2020 (the last time the survey asked entrepreneurs on this question).

The economic rebound is visible in the hard-hit accommodation / food industry, where 34% of companies have open positions and 31% plan to hire more in the next year. More than half of business owners in this space expect an increase in revenue over the next 12 months, while only 13% expect a further decline.

But Main Street is also worried about rising commodity prices as the government pushes for higher corporate taxes and a higher minimum wage. Just under half, 48%, of small business owners said the cost of raw materials would rise the most (relative to the cost of labor and capital) over the next six months.

“These are real things that impact the business and operations,” Kerrigan said. Global supply chain issues – which have plagued businesses of all sizes – and the struggle to find new suppliers, have combined with inflation to limit the ability of the small business sector to return to trusted levels. ‘before the pandemic.

“They feel rushed because they can’t raise the prices and all the chatter about the potential for inflation has an impact on confidence and how much they invest,” she added.

Partisan politics

The influence of personal politics on small business sentiment is evident in survey responses related to immigration.

The change of administration has brought about a secular shift in the way Republican small business owners feel about tax, regulatory and immigration policy, which are key factors in dampening the index reading. small business trust. Republican confidence fell from 32 to 35. However, that number was 57 in the quarter leading up to the 2020 election.

Meanwhile, 41% of small business owners expect immigration policy changes over the next 12 months to have a negative impact on their businesses, up from 36% in the first quarter and 17% a year ago. a year. Overall, 17% of homeowners said immigration is the issue that matters most to them right now, compared to 5% who said it in the first quarter. This increase led immigration to adopt a health care policy in the second quarter survey, seen as the biggest problem on Main Street behind jobs and the economy. More than a quarter of Republicans, 27%, see immigration as the most important factor compared to 9% of independents and 3% of Democrats.

The current crisis on the country’s southern border and the influx of migrants have been a challenge for the administration, but small business experts say partisan politics is the likely explanation for the shift.

In fact, Kerrigan noted that the small business community has been generally supportive of immigration reform over the past two decades and that the Trump administration’s immigration policy has been a clear negative for Main Street. Kerrigan said small business owners might also be disappointed that Biden has yet to show more action to fix a flawed immigration system that makes it difficult to obtain worker visas.

The CNBC | SurveyMonkey online survey was conducted April 19-26, 2021 among a national sample of 2,201 self-identified small business owners aged 18 and over, using the SurveyMonkey platform. This quarter, the research also included the results of 9,225 people who do not own small businesses.

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