June 26, 2022, 1:01 p.m. EDT

‘People are still spending money’: Small-business owners worry about a recession, yet many feel confident they will survive one. Here’s why

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By Zoe Han

Small business owners say they have one more item to add to their list of worries: recession.

More than four in five small business leaders say they worry that a recession will hit the economy soon and it will impact their businesses, according to a new survey by online business-banking platform Kabbage, a checking-account service by American Express /zigman2/quotes/203805826/composite AXP +2.29%

The survey is the latest installment of Kabbage’s Small Business Recovery report. It collected answers from 550 small business leaders with fewer than 500 employees across industries in early April.

The small business leaders aren’t alone. Wall Street forecasters from J.P. Morgan & Chase /zigman2/quotes/205971034/composite JPM +2.61% CEO Jamie Dimon and Goldman Sachs /zigman2/quotes/209237603/composite GS +3.35% CEO David Solomon to investor Michael Novogratz see economic storm clouds ahead as the U.S. Federal Reserve attempts to engineer a “soft landing” while simultaneously taming inflation. A Financial Times survey conducted in early June showed that a majority of economists predicted a recession will begin in 2023. 

The U.S. economy shrank in the firs t quarter of the year and is on track to expand by less than 1% for the second one, according to Wall Street estimates. Some economists have predicted that this trend points to further evidence of an impending recession, defined as two straight quarters of declining economic growth. 

As of the end of May, the cost of living had risen by 8.6% compared to a year ago. With inflation at a 40-year high, the Central Bank has implemented a series of interest-rate hikes that could put the federal funds rate between 3.25% and 3.5% by the end of the year, according to Bankrate , a personal-finance website. The Fed had kept interest rates at close to zero as a way to incentivize economic activity since the beginning of the coronavirus outbreak. 

After the latest 75-basis-point rate hike, it will be more expensive to take out a business loan. The businesses face a double-edge sword: Among those small businesses that have applied for credit or are planning to do so in the next six months, almost half of them reported that they plan to use the money to cover inflation-related costs, according to the Kabbage survey. 

Still, Kabbage also found that small-business owners may be drawing lessons from the pandemic to help them prepare for a recession. Around 80% of respondents are confident about their business surviving a potential recession, and said the top reason they feel that way is that the pandemic has helped them find a greater sense of resilience and to prepare for any upcoming economic turbulence ahead. 

“Small businesses are traditionally optimistic through difficult times because they’re comfortable making the necessary modifications to persevere,” said Gina Taylor Cotter, executive vice president and general manager of U.S. Small Business Banking at Kabbage. She said various economic factors have pushed small businesses to prioritize branding, marketing and e-commerce to set themselves apart from the competition.

“Hopefully, if there is a recession it will likely be mild given that the foundation of the economy is fairly good,” said Holly Wade, executive director of the National Federation of Independent Business (NFIB) Research Center during a recent NFIB event . ”People are still spending money. Most people who want a job, have a job. All of these factors are very different from the 2007 financial crisis, when we had a housing bubble and other foundational issues.”

/zigman2/quotes/203805826/composite
US : U.S.: NYSE
$ 162.44
+3.64 +2.29%
Volume: 3.22M
Aug. 10, 2022 4:03p
P/E Ratio
16.67
Dividend Yield
1.28%
Market Cap
$119.06 billion
Rev. per Employee
$774,469
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/zigman2/quotes/205971034/composite
US : U.S.: NYSE
$ 118.39
+3.01 +2.61%
Volume: 12.78M
Aug. 10, 2022 4:00p
P/E Ratio
9.50
Dividend Yield
3.38%
Market Cap
$338.88 billion
Rev. per Employee
$475,915
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/zigman2/quotes/209237603/composite
US : U.S.: NYSE
$ 347.91
+11.29 +3.35%
Volume: 2.43M
Aug. 10, 2022 4:00p
P/E Ratio
7.87
Dividend Yield
2.87%
Market Cap
$115.61 billion
Rev. per Employee
$1.24M
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