Small- and Medium-Sized Businesses Are More Optimistic Despite Banking Turmoil

Small- and medium-sized businesses ended the second quarter with improved business optimism and stable access to credit despite bank failures
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June 28, 2023 at 5:00 am UTC

Key Takeaways

  • Sentiment among small- and medium-sized businesses broadly improved in Q2 2023 despite recession fears and banking sector turmoil. 

  • Sales growth accelerated in Q2 as inflation concerns began to moderately recede, while access to loans became easier for SMBs in Q2 despite reports of tighter lending standards.

  • The pace of hiring picked up marginally in Q2 2023, and roughly a quarter of SMBs plan on increasing their headcount over the next three months, consistent with last quarter.

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Sentiment among SMBs broadly improved in Q2 despite heightened financial market uncertainty, with higher shares of SMBs expressing optimism about the macroeconomic outlook.

The share of SMBs reporting higher sales increased to 39% in Q2 2023, up from 28% the prior quarter. Only 14% of SMBs reported lower sales volumes in Q2 2023. The upward movement largely reversed two quarters of declines, with the improvement in sales growth driven primarily by SMBs with 100 employees or fewer. On the other hand, larger SMBs saw little change quarter over quarter. 

Inflation remained the top challenge facing SMBs for the fourth consecutive quarter, but the share of SMBs citing inflation as a major business challenge fell to 40% in Q2 from 46% in Q1. However, a rising share of SMBs say it’s easy to pass along elevated input costs to their buyers, with more expecting their prices to rise over the next 12 months.

Inflation Remains Top Business Challenge, but Numbers Are Falling

Respondents who said they experienced the following "major challenges" to their businesses:
Top 10 among small businesses
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Source: Morning Consult Economic Intelligence

Despite banking turmoil in March and April, more SMBs reported easier access to loans relative to three months ago, continuing the trend that began in Q1. SMBs benefited from the contained nature of the banking sector turmoil, which has yet to create widespread, persistent financial market stress, thereby limiting its impact on the broader economy. 

Access to Credit Is Stable Despite Banking Turmoil

Share who said loans were easier or harder to get than 3 months ago
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Figures may not add up to 100% due to rounding.
Source: Morning Consult Economic Intelligence

Actual and expected stress in the banking sector also prompted the Federal Reserve to slow its pace of interest rate hikes, effectively easing credit conditions relative to market expectations. Borrowers, including SMBs, benefited from easing financial conditions in Q2

Looking ahead, the Fed has increasingly signaled its willingness to raise interest rates again this year, given the persistence of elevated inflation. However, if financial markets do not believe in the credibility of the Fed’s commitment to fighting inflation, financial conditions may remain relatively laxed, allowing SMBs to continue benefiting from easy access to loans.

This memo provides a preview of the Q2 2023 Morning Consult SMB Report, drawn from Morning Consult’s quarterly survey of small- and medium-sized business owners and decision-makers. The survey and report provide quarterly updates into the experiences and expectations of SMBs on a range of economic, financial and business conditions.

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John Leer
Chief Economist

John Leer leads Morning Consult’s global economic research, overseeing the company’s economic data collection, validation and analysis. He is an authority on the effects of consumer preferences, expectations and experiences on purchasing patterns, prices and employment.

John continues to advance scholarship in the field of economics, recently partnering with researchers at the Federal Reserve Bank of Cleveland to design a new approach to measuring consumers’ inflation expectations.

This novel approach, now known as the Indirect Consumer Inflation Expectations measure, leverages Morning Consult’s high-frequency survey data to capture unique insights into consumers’ expectations for future inflation.

Prior to Morning Consult, John worked for Promontory Financial Group, offering strategic solutions to financial services firms on matters including credit risk modeling and management, corporate governance, and compliance risk management.

He earned a bachelor’s degree in economics and philosophy with honors from Georgetown University and a master’s degree in economics and management studies (MEMS) from Humboldt University in Berlin. 

His analysis has been cited in The New York Times, The Wall Street Journal, Reuters, The Washington Post, The Economist and more.

Follow him on Twitter @JohnCLeer. For speaking opportunities and booking requests, please email [email protected]

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Jesse Wheeler
Senior Economist

Jesse Wheeler previously worked at Morning Consult as a senior economist.

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Akber Khan

Akber Khan is an economist at decision intelligence company Morning Consult, where he supports the research efforts of the Economic Intelligence team by applying a combination of data science, data engineering and econometric forecasting methods to deliver insights into global macroeconomic trends. Previously, he worked for the Federal Reserve Board as a financial analyst, covering issues such as banking and finance, short-term funding markets, and monetary policy. He received a bachelor’s degree in economics from Bentley University.

Follow him on Twitter @AKhanMC. For speaking opportunities and booking requests, please email [email protected]

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