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Inflation and other issues deflating economic sentiment

June 24, 2024

Inflation and other issues deflating economic sentiment

The national economy may be showing some positive signs, such as stronger-than-expected economic growth and a continued robust labor market. However, inflation is continuing to grind on. While the rate is much lower than what was experienced in 2021 and 2022, it is still higher than the Federal Reserve’s target rate.

This persistent economic environment is weighing on both small business owners and middle market enterprises. According to a recent Nationwide survey of these two segments, the general sentiment is a mixed bag of negative feelings toward the overall economy, but a much more positive outlook when it comes to their own businesses.

The survey showed 7 in 10 small business owners (72%) and half of mid-market business owners (51%) rate the current condition of the US economy overall as poor or fair.

On the other hand, there is more optimism when considering their businesses specifically. Just over half (51%) of small business owners rated their own business conditions as good or excellent, and nearly three-fourths (73%) of middle market owners said their situation is good or excellent.

Positive outlooks infographic.

This split between national vs. local outlook is likely because their top concerns are related to macroeconomic factors. Business owners said their top concerns are:

  • Inflation / rising prices (64% SBOs, 58% MMBOs)
  • High interest rates (48% SBOs, 51% MMBOs)
  • Upcoming US presidential election (51% SBOs, 48% MMBOs)

Facing pressure

Economic instability looms large for many business owners, no matter the size of their operation. More than half (54%) of small business owners and 62% of middle market business owners said that one of their top challenges for the upcoming year is preparing for economic disruption. More specifically, other challenges they pointed to are:

  • The top challenge they cited was dealing with high energy costs (60% SBOs, 62% MMBOs)
  • High raw material costs (51% SBOs, 67% MMBOs)
  • Supply chain disruptions (45% SBOs, 61% MMBOs)

Economic disruption concern infographic.

Employee issues are another top concern. Both small and mid-size owners are fielding requests from their workers that have an effect on their business – 49% of small businesses and 64% of middle market businesses said that rising cost of employee benefits are a challenge they face.

Digging deeper into this we found that, over the last 6 months, many have experienced employees:

  • Asking for better compensation (34% SBOs, 39% MMBOs)
  • Taking on other jobs / gig work (27% SBOs, 33% MMBOs)
  • Asking for more or better benefits (25% SBOs, 40% MMBOs) in the last six months

As a result, business owners, especially mid-market, have taken (within the past six months) or are considering taking (within the next six months) the following actions:

  • Increase wages to account for rising living costs (59% SBOs, 80% MMBOs)
  • Meet with a financial advisor or financial planner (56% SBOs, 80% MMBOs)
  • Use personal savings to support the business (42% SBOs, 50% MMBOs)
  • Apply for a personal loan to help support the business (33% SBOs, 51% MMBOs)
  • Improve retirement plan offerings (32% SBOs, 74% MMBOs)

While there are many challenges to face, the good news is that many businesses feel prepared to handle disruptions. About half of middle market businesses and 29% of small businesses said they are “very” or “extremely” prepared to handle a major disruption, such as weather events, infrastructure issues, or financial issues.

This is likely due to the intentional steps they are taking to reduce business risk, especially among mid-market business owners:

  • Proactively planning for potential crises (contingency planning) (53% SBOs, 66% MMBOs)
  • Implementing or updating a business continuity plan (41% SBOs, 63% MMBOs)
  • Investing more in cybersecurity (33% SBOs, 67% MMBOs)
  • Making structural repairs or improvements to my business’ building / property (31% SBOs, 59% MMBOs)
  • Performing a risk management audit (27% SBOs, 68% MMBOs)

Actions to take

Despite the preparation from owners, there is still a sizeable number of businesses who do not feel fully prepared to deal with disruption. More than a third (36%) of small businesses and 29% of middle market enterprises said they are not proactively planning for a potential crisis. Overall, two-thirds of small businesses and 44% of middle market businesses only feel “somewhat or moderately” prepared to navigate a major business disruption.

Survey respondents also have their coverage top of mind with 84% of small businesses and 90% of middle market operations stating that they have, or plan to, review their insurance coverages.

Of those who currently work with an insurance agent to manage their business’s insurance needs (67% SBOs, 80% MMBOs), a third (34% SBOs, 36% MMBOs) have contacted their agent in the past six months to discuss their coverage, and a similar proportion of mid-market business owners have increased coverage/limits on their existing insurance policies (38%).

When thinking about how likely they would be to talk with their business’s insurance agent about the impact of certain topics on their business’ operations and insurance policies, business owners are looking to discuss inflation (48% SBOs, 67% MMBOs), high interest rates (44% SBOs, 67% MMBOs), and financial market volatility (38% SBOs, 68% MMBOs).

Follow-up actions you can take include:

  • Have risk management conversations. Taking action to reduce risk helps keep workers safe and can minimize disruptions that can hurt business results. Nationwide’s Loss Control Services has solutions that can be tailored to individual business needs across a wide range of industries.
  • Review policy details – such as ensuring property valuations and coverage limits are updated – to help provide full protection if a loss occurs. Because it’s so much more expensive and time-consuming to make repairs, policyholders are paying more out of pocket after a loss if they haven’t adequately adjusted their coverage limit.
  • Access materials that can support conversations about inflation and disruptions:

Further details