Small Businesses Struggle with Inflation, Labor Shortages
NFIB’s Small Business Optimism Index declined 0.8 points in October to 91.3, which is the 10th consecutive month below the 49-year average of 98. Thirty-three percent of owners reported that inflation was their single most important problem in operating their business, three points higher than September’s reading and four points lower than July’s highest reading since the fourth quarter of 1979.
“Owners continue to show a dismal view about future sales growth and business conditions, but are still looking to hire new workers,” said NFIB Chief Economist Bill Dunkelberg. “Inflation, supply chain disruptions, and labor shortages continue to limit the ability of many small businesses to meet the demand for their products and services.”
- Of the 10 Index components, two increased, seven declined, and one was unchanged.
- Owners expecting better business conditions over the next six months deteriorated two points from September to a net negative 46%.
- The net percent of owners raising average selling prices decreased one point to a net 50% (seasonally adjusted). Half of all firms are raising prices, that’s inflation.
- The net percent of owners who expect real sales to be higher decreased three points from September to a net negative 13%.
A net negative 8% of all owners (seasonally adjusted) reported higher nominal sales in the past three months, three points worse than from September.
The net percent of owners raising average selling prices decreased one point from September to a net 50% (seasonally adjusted). Unadjusted, 8% of owners reported lower average selling prices and 56% reported higher average selling prices. Price hikes were the most frequent in retail (69% higher, 6% lower), wholesale (64% higher, 12% lower), construction (61% higher, 5% lower), and services (54% higher, 5% lower). Seasonally adjusted, a net 34% of owners plan price hikes.
Seasonally adjusted, a net 44% of owners reported raising compensation, down one point from September. A net 32% plan to raise compensation in the next three months, up nine points from September and the highest since October 2021.
The frequency of reports of positive profit trends was a net negative 30%, up one point from September. Among owners reporting lower profits, 34% blamed the rise in the cost of materials, 22% blamed weaker sales, 12% cited labor costs, 12% cited lower prices, 7% cited the usual seasonal change, and 2% cited higher taxes or regulatory costs. (…)
U.S. Consumer Credit Growth Slows During September
Consumer credit grew $25.0 billion (7.9% y/y) during September following a $30.2 billion August increase, revised from $32.2 billion. A $30 billion gain had been expected in the Action Economics Forecast Survey. The ratio of consumer credit outstanding to disposable personal income held steady at 25.0% in September, remaining the highest since March 2020.
Revolving consumer credit balances grew $8.3 billion (15.1% y/y) after increasing a little-revised $17.1 billion in August. (…)
Nonrevolving consumer credit balances rose $16.6 billion (5.8% y/y) after increasing $13.0 billion in August, revised from $15.1 billion. (…)
The value of student loans outstanding rose 1.7% y/y to $1.769 trillion in Q3’22. The value of motor vehicle loans outstanding rose 7.4% y/y to $1.397 trillion.
Putting your bills on a retail credit card will cost you more than ever this holiday shopping season, Axios writes. The average annual percentage rate for a retail credit card is 26.72%, an all-time high, according to data collected by CreditCards.com. 11 cards have maximum APRs of 30.74%, including Speedy Rewards Mastercard and Kroger Rewards World Elite Mastercard.
The October 2022 Senior Loan Officer Opinion Survey on Bank Lending Practices
How’s this as a recession indicator?
Most banks assigned probabilities between 40 and 80 percent to the likelihood of a recession in the next 12 months, with no bank reporting a probability less than 20 percent. Although banks in general assigned relatively high probabilities to a recession occurring in the next 12 months, most banks reported expecting the recession to be mild to moderate, should one occur.
Callum Thomas illustrates the CRE crunch. It can’t get much worse…can it?
Soft landing still possible, Goldman economist says (Axios)
In a new note from Goldman Sachs, chief economist Jan Hatzius puts the likelihood of a recession in the U.S. over the next 12 months at 35% — far below some of the more dire predictions circulating.
While surging inflation makes the economy feel terrible and a recession seems inevitable, there are signs that a “soft landing” is still possible. It’s a “narrow path,” Hatzius writes.
- “The most encouraging recent step on the narrow path to a soft landing has been the slowdown in nominal wage growth,” Hatzius writes.
- He points to a few data sets, including Goldman’s own aggregated business survey data on actual or expected wage changes, which has fallen from 5.5% wage growth to around 4% now.
- The Employment Cost Index also turned over in the third quarter after two years of steady increases.
Hatzius notes that GDP growth is slowing and the labor market is moderating in terms of fewer job openings and a falling quits rate.
- To be sure, the labor market is still quite strong. He calls this a “modest loosening.”
- Asking rent prices are also slowing, according to private market data, as Hatzius notes. But that decline will take a while to show up in the official inflation numbers, as Fed chair Jerome Powell said last week.
- “[T]here will come a point at which rent inflation will start to come down. But that point is well out from where we are now,” Powell said.
No one really knows anything. “[T[he Fed is tightening aggressively, and we live in an exceptionally uncertain world in terms of both US politics and geopolitics,” Hatzius writes.
More Workers Get Side Hustles to Keep Up With Rising Costs As full-time workers feel pinched by inflation, some are turning to second part-time jobs to supplement their incomes.
The October jobs report shows the number of Americans working part-time jobs in addition to their full-time jobs has increased 6%, year-over-year, to 4.5 million people, according to statistics from the Labor Department. (…)
Nearly three-quarters of workers said they need additional work to make enough income due to inflation, according to an October survey of more than 1,700 U.S.-based employees by job search website Monster.com. A separate survey of more than 4,700 people conducted by Prudential Financial Inc. found 81% of Gen-Z and 77% of millennial workers said they have pursued gig work or are considering additional side work this year to supplement their income. (…)
Even though the number of full-time workers holding second part-time jobs is nearly back to prepandemic levels, the chronic staff shortages in retail and hospitality mean there are still a lot of traditional part-time jobs open, said Jim McCoy, senior vice president of enterprise solutions at ManpowerGroup, which offers temporary-staffing services. Sometimes, there are even perks. (…)
- Inflation, Recession Fears Have Some Holiday Shoppers Trading Down Consumers are swapping everything from Lululemon leggings to Natori underwear for cheaper alternatives: “A $12 bra is good enough.”
Covid’s Drag on Workforce Proves Persistent The virus is still keeping millions of Americans out of work while reducing the productivity and hours of millions more. That is disrupting business operations and raising costs for employers.
(…) In the average month this year, nearly 630,000 more workers missed at least a week of work because of illness than in the years before the pandemic, according to Labor Department data. That is a reduction in workers equal to about 0.4 percent of the labor force, a significant amount in a tight labor market. That share is up about 0.1 percentage point from the same period last year, the data show. (…)
Another half a million workers have dropped out of the labor force due to lingering effects from previous Covid infections, according to research by economists Gopi Shah Goda of Stanford University and Evan J. Soltas at the Massachusetts Institute of Technology. In a Census Bureau survey in October, 1.1 million people said they hadn’t worked the week before because they were concerned about contracting or spreading the virus. (…)
The virus’s lingering effects on staffing have forced employers to change how they operate, such as keeping more people on payroll so that work continues without interruption during surges of infections, and cross-training staff and standardizing processes so that one person’s absence doesn’t slow down a project. That has made many companies less efficient. (…)
Aaron Sojourner, a labor economist at the W.E. Upjohn Institute for Employment Research, estimates that at least one million people weren’t working in October because of current or past Covid infections. Aside from a few big spikes, the number of short-term Covid absences has held relatively steady through the pandemic, on average, but the number of extended absences due to long Covid absences has been adding up. (…)
In the average month this year, 890,000 more workers were out for at least a week because of their own illness—Covid or other—child-care problems or an unspecified reason than in the corresponding months between 2017 and 2019. In addition, in the average month, some 2.3 million employees who were normally full-time worked less than 35 hours a week due to their own illness or child-care problems. That is about 490,000 more workers out each month, on average, than the corresponding month in the three years before the pandemic. (…)
Around 420,000 workers ages 16 to 64 likely left the labor force because of long Covid, according to a new analysis of disability data by Louise Sheiner and Nasiha Salwati of the Brookings Institution. (…)
The Pace of Tech Job Cuts is Reaching Early Pandemic Levels
(…) More than 104,000 startup workers have lost their jobs so far this year, surpassing the roughly 81,000 posts shed in 2020, said Lee, whose site tracks cuts at startups, which it defines as any firm formed after the dot-com bubble. Layoffs.fyi’s estimates differ from Challenger’s because they include numbers from media reports companies may not have confirmed. (…)
The predicament is more dire for startups, which likely will have to make more significant cuts to their staffs as soaring interest rates hinder their ability to raise capital, said Stephen Levy, director of the Center for Continuing Study of the California Economy, a research firm based in Palo Alto, California.
“It’s real, and it won’t go away until we get interest and inflation rates back to normal,” Levy said of startups’ woes.
To be sure, the scale of layoffs remains a far cry from the cuts made after the dot-com bubble burst. In 2001, the tech industry shed 168,395 jobs, followed by another 131,294 posts lost in 2002, according to Challenger. (…)
China vows to continue with ‘dynamic-clearing’ COVID strategy
China will persevere with its “dynamic-clearing” approach to COVID-19 cases as soon as they emerge, health officials said on Saturday, adding that measures must be implemented more precisely and meet the needs of vulnerable people.
The country’s strict COVID containment approach is still able to control the virus, despite the high transmissibility of COVID variants and asymptomatic carriers, an official from the China National Health Commission told a news conference. (…)
Asked if there would be a change of policy in the near term, disease control official Hu Xiang said China’s measures are “completely correct, as well as the most economical and effective.”
“We should adhere to the principle of putting people and lives first, and the broader strategy of preventing imports from outside and internal rebounds,” she said. (…)
Officials said they would begin a push to increase vaccinations among the elderly, noting that while 86.35% of citizens aged 60 and over are fully vaccinated, fewer people 80 and older have had vaccinations and boosters. (…)
Nvidia Offers Alternative Chip for China to Clear U.S. Export Hurdles The new graphics-processing chip, branded the A800, replaces the A100, a chip widely used in servers and AI applications by Alibaba, Tencent and Baidu.
(…) According to a memo Nvidia sent to its channel distributors last Thursday, the A800 has the same computational performance but a narrower interconnect bandwidth, the capacity of a chip to send and receive data from other chips, crucial for training large-scale AI models or building supercomputers.
“The A800 meets the U.S. Government’s clear test for reduced export control and cannot be programmed to exceed it,” the company said. Nvidia’s plans to offer the new chip was earlier reported by Reuters. (…)
About a quarter of Nvidia’s $26.9 billion in revenue in its most recent fiscal year came from China and Hong Kong, the company said. (…)
The change is akin to reducing the lanes of a highway from six to four, and would have the largest impact on the performance of supercomputers, which string thousands of graphics-processing chips together. Simpler tasks that require only one or a few chips, such as AI inference—running an AI model after it has been trained—will be minimally affected.
The U.S. restrictions on advanced chip exports announced last month limited the interconnect bandwidth of chips that could be exported to China without a license to less than 600 gigabytes per second, alongside other performance thresholds.