Small business pain points to recession

Small businesses are the canary in the recession coal mine

In testimony before Congress Wednesday, Federal Reserve Chairman Jerome Powell confirmed what Americans already know: historic inflation is not mainly a result of Russia's war in Ukraine, and the Fed's interest rate hikes may cause a recession. "It's certainly a possibility," Powell told lawmakers.

These messages contradict President Biden's claims that runaway prices are a "Putin price hike" and that the economy is robust.

Powell also said he wants to "get back to" the pre-pandemic labor market. In other words, he wants to return to the Trump-era economy of shared prosperity and stable prices. Don't we all.

However, Powell seemed to agree with Biden's assessment that the nation's labor market is strong. "The labor market has remained extremely tight, with the unemployment rate near a 50-year low, job vacancies at historical highs, and wage growth elevated," said Powell on Wednesday. Biden has similarly claimed at every opportunity that his administration has presided over historic job creation and high wage growth.

Yet this rosy analysis is seriously flawed. It omits the fact that these jobs aren't created but merely backfilled from those lost during the Covid-19 pandemic. In fact, there are still fewer Americans working today than before the pandemic began. The labor force participation rate has actually declined over the past couple of months.

The fast wage growth claim is especially preposterous because real wages, adjusted for inflation, are significantly falling. Over the past year, consumer inflation has grown 65 percent faster than average wages, reducing Americans' living standards.

Employment trends at small businesses also tell a different story. According to ADP payroll data, small businesses with less than 50 employees are actually shedding jobs. Over the last two months, these traditionally prominent job creators have lost 211,000 positions.

Small businesses are hit harder by high inflation because they do not have the economies of scale and preferential purchasing agreements of their big business competitors. Officially, wholesale inflation is increasing at 10.8 percent, but prices for small businesses are likely rising even faster. It's becoming very difficult for small businesses to keep up without cutting costs, including labor, to compensate.

Record-high gas prices, which have doubled during Biden's presidency, are reducing small business profitability by diminishing consumers' disposable income. Interest rate increases are also making consumer debt more expensive. No wonder consumer sentiment fell to a record-low level this month, even below the rate set during the depths of the Great Recession.


Job Creators Network's SBIQ poll of national small business owners indicates that respondents are more pessimistic than at any point in the poll's history. Most small business owners say the economy is headed in the wrong direction, and most are concerned that economic conditions could force them to close their businesses. They overwhelmingly cite inflation as the biggest problem they face.

The Wall Street Journal reported Wednesday that many small companies have begun rescinding job offers. Admittedly, job cancelations and layoffs seem primarily concentrated in the tech start-up sector. But expect them to expand across the economy in the coming weeks and months.


The pain felt by small business owners is reverberating throughout the economy. Last week, the Atlanta Federal Reserve updated its estimate for second-quarter GDP growth to zero percent, indicating the nation is on the verge of a recession. Economists recently significantly raised their recession-probability projection to a level typically only seen when the economy is in or on the brink of recession.

Small businesses are the canary in the recession coal mine. The economic pain they are feeling suggests that a recession is more than merely "a possibility."


Alfredo Ortiz is president and CEO of Job Creators Network.