Report: 70% of Small Businesses Believe US Headed Toward Recession
Kate Nishimura
5 min read
The vast majority of small business owners are none too pleased about the state of the country’s economy.
A whopping 70 percent of them believe the U.S. is headed toward a recession, according to CNBC and SurveyMonkey’s Small Business Confidence Index for the second quarter. Nearly all (95 percent) of surveyed Democrat SMB owners foresee a dramatic economic slowdown, compared with almost half of Republicans (47 percent).
Meanwhile, just 30 percent of the 2,257 individuals queried between April 21 and April 25 said they see the current economic outlook as “excellent” or even “good.” That’s down 9 percentage points from the groups’ most recent survey, conducted during the previous quarter.
Much of small business owners’ pessimism seems to stem from a predictable source: tariffs. Two-thirds said they expect President Donald Trump’s 10-percent universal baseline tariffs and his varied “reciprocal” duties on more than 60 of the country’s most prominent trading partners to impact their businesses, and 31 percent said they’ve already experienced adverse effects.
More than one-third (35 percent) are actively bracing for the future with an anxious eye toward what new trade policy might be coming down the pike, and 59 percent are concerned about what could happen now or in the future. Notably, the majority of respondents (54 percent), including 95 percent of Democrats and 84 percent of Republicans, oppose the tariffs. Seventeen percent cited tariffs as the biggest risk to business.
A lot of unease stems from fears about inflation flaring up again after seeming to cool and stabilize early in the year. Most SMB owners (72 percent) said they expect the price of goods to go up (compared to 63 percent who said the same during the previous quarter), and just 27 percent believe inflation has reached its peak (down from 36 percent who said the same in Q1). The issue is the biggest concern among small business owners, with 52 percent calling it their biggest source of financial stress, and 24 percent citing rising costs as the most pressing risk to their livelihoods, followed by weakening consumer demand (18 percent).
These factors have done a number on small business confidence, the survey showed. Calculated through an amalgamation of all responses related to stressors and the economy, the small business confidence index declined “sharply” to 51, down from 56 in the first quarter, analysts wrote. Survey respondents displayed negative sentiment across nearly all business conditions, from future business revenue to employment, technological innovation, government and trade policy.
Only 36 percent characterized current business conditions as favorable, down from 42 percent during the previous quarter, and only 41 percent believe revenue will increase during the next 12 months (an 11-percent drop from the first quarter). This spells bad news for the job market: just 22 percent said they expect to up headcount over the course of the next year, down 6 basis points.
Gazing into a crystal ball doesn’t provide much relief, with the federal government’s trade policy already impacting orders and business for future seasons. Forty-four percent of SMB owners said they believe governmental regulations and trade policy (51 percent) to have negative impacts on their bottom lines, and 37 percent feel the same way about tax policy.
“Small business owners across the political spectrum see declining sentiment, with Democrats declining from 37 to 33 the previous quarter, Republicans 72 to 68, and Independents 51 to 45,” analysts wrote.
By contrast, supply chain decision-makers are feeling bullish about their prospects amid the tariff uncertainty.
RSM’s recently released Supply Chain Special Report, which compiled the results of a survey of 309 supply chain decision makers and influencers from the U.S. and Canada during the month of March, showed that the greater majority of supply chain companies (85 percent) are very or somewhat prepared to contend with the rollout of trade and tariff policies over the course of the next 12 months.
Predictably, though, stances on tariffs vary between the U.S. and Canada, with 87 percent and 76 percent, respectively, saying they were prepared to some degree. Since the survey was taken, the tariff landscape has changed considerably; Trump’s “Liberation Day” tariff announcements took place on April 2, after respondents were asked about their outlook.
“The pandemic forced businesses to improve supply chain data and have better information overall about where goods were coming from,” Dr. Tu Nguyen, RSM Canada economist, said. Years of supply chain shakeups that began in 2020 have opened the eyes of supply chain managers, underscoring the need to improve resilience and visibility and making preparedness a priority.
“While things seem to be a lot better now, the current uncertainty in the trade environment could be another wake-up call for businesses that still don’t have the best transparency or visibility into their supply chain,” Nguyen said.
While many of the firms surveyed said they felt prepared to weather an upcoming storm from a business perspective, they had varied views on the potential economic impacts of tariff policy. The largest contingent (40 percent) said they foresee a negative impact, while 36 percent think the effects of the tariff scheme will be positive and 24 percent said they predicted no impacts at all.
“If your business—or even a product or product line within your business—has a lower exposure to tariffs as compared to your competition, then you suddenly have a significant opportunity to gain market share from your competitors,” RSM U.S. management consulting principal and supply chain leader Casey Chapman said. “No doubt we will see more ‘Buy American’ messages as the companies take advantage of the moment.”
According to RSM analysts, some organizations are planning to pass along costs to customers, and some are ordering more stock now in anticipation of the duty rollouts—though inventories are still dwindling. Others are utilizing bonded warehouses and free trade zones—all strategies to hopefully circumvent the blunt force impact of the added duties, some of which, like those on China-made goods, are in the triple digits.
