Despite ongoing challenges such as high prices and rising wages, the small business economy is showing continued resilience and growing confidence in the economy. The Q1 MetLife and U.S. Chamber of Commerce Small Business Index shows a stable business climate, with the confidence score rising slightly to 62.3 from Q4 2023’s 61.3. Notably, 32% of small business owners now view the U.S. economy as healthy, a seven-point increase from the previous quarter, and 38% believe their local economy is in good health, up eight points from the end of 2023.
While we still experience challenging headwinds, the positive direction of recent job reports and the rising confidence among small business owners highlight their preparedness to navigate and overcome unforeseen challenges. This resilience not only stabilizes the small business sector but also contributes to broader economic stability and growth.
As we close Small Business Month this month, we remain optimistic. However, it’s also important to look closely at the opportunities and challenges for the small business economy in adapting to our current economic and competitive landscape. In conversations with partners and leaders across our business, we’ve outlined some of the key trends by digging beneath the surface to learn about how small businesses are faring.
Adjusting to Burdens of Higher Costs
Renewed inflation has altered the way the small business economy is operating and, in many cases, has made it more resilient than it was a couple of years ago. The famous Hemingway quote is apt as this moment: “we are all stronger in the broken places”. We see across our regions of operation in New Jersey, New York and Florida that local businesses are rising to the occasion and executing on opportunities, despite challenges. Rather than focusing on high-speed growth, we’re observing a more strategic, steady approach to growth compared to previous years.
Some businesses have encountered challenges with supply chain needs due to increased prices. As a result, many companies are adjusting and learning to prioritize where to invest resources. For example, in the construction industry firms may be focusing more on existing projects rather than taking on new ones due to higher costs of goods and capital.
As Mike Rozman, Founder and CEO of BoeFly, a fintech that supplies technology tools to small businesses, also notes, “Higher rates and construction cost inflation present challenges for franchisees…Franchisors are expected to adopt a more measured growth approach.” This strategic shift is reflective of the broader trend where companies are becoming more selective and efficient in their operations.
Across regions, here are some of the trends that we’ve learned speaking with our leadership:
- New York: The economy remains robust with high demand for commercial spaces and bustling activity in city centers. Businesses are adapting to higher costs by focusing on efficiency and strategic growth.
- New Jersey: The market shows signs of flattening, reflecting maturity but still maintaining strength. Companies are prioritizing profitability and long-term stability over aggressive expansion.
- Florida: Despite challenges from rising property insurance costs and a potentially more dangerous hurricane season, strong residential and commercial activities continue. Businesses are leveraging Florida’s continuous population growth to explore new opportunities.
Here are a few other observations:
- Change to Growth Strategy: Economic uncertainty and higher rates are forcing local businesses to be more strategic in how they approach their path to growth. In recent years, businesses have sought expansion. But now, more are focused on profitability and charting a course for long-term and sustainable growth.
- Opportunities for Growth: Growth opportunities are attractive in sectors like technology, healthcare, and real estate. Businesses are expanding into underserved markets and leveraging digital tools to enhance their reach.
- Competition: Small businesses face intense competition, and many are adopting new technologies to gain an edge. For example, many have an opportunity to integrate advanced software solutions for better inventory management or use new online platforms to reach a broader audience.
- Market Expansion Considerations: Many businesses are considering expanding into new regions within their states or exploring new states to tap into emerging markets and take advantage of lower taxes. Florida’s continuous population growth presents attractive expansion opportunities.
David Canet, Managing Director at ConnectOne Bank, observed, “The general outlook of our small business clients has shifted significantly. Earlier this year, concerns about high interest rates and economic uncertainty were prevalent. Today, while rates remain high, the pace of increases has moderated, and there’s a prevailing optimism that rates may tick down later this year. The economy is sound and growing, leading to less fear about servicing debt and more optimism about future prospects.”
Small businesses are cautiously optimistic, but we see enormous upside. By focusing on the long-term and prioritizing the right growth opportunities, they can continue to adapt and be successful.
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