In an uncertain year, MI small business owners are less optimistic

GRAND RAPIDS, Mich. (WOOD) — Small business owners in Michigan are less optimistic than they were last year, a survey found, as entrepreneurs face a shifting post-pandemic economy during an election year.

The Small Business Association of Michigan surveyed 400 of its members and found that 50% of small business owners are optimistic about the next six months, down from 57% last year. It found that 66% are optimistic about the long-term survival of their business. Of those that answered the survey, 55% had a business with one to 10 employees, 31% employed 11 to 50 people and 15% had 51 or more.

The statewide numbers are similar to what economists are seeing in West Michigan. Paul Isely, an associate dean at the Grand Valley State University Seidman College of Business, said that while the confidence levels in West Michigan are always a bit higher than what the SBAM finds, his team is seeing a similar decline in confidence among local small business owners.

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There has been a steady decline in optimism from Michigan small business owners over the last couple of years, Brian Calley, president and CEO of the Small Business Association of Michigan, told News 8.

“Entrepreneurs or small businesses tend to feel subtle shifts in the economy before they show up in the top-line economic numbers that people look at,” he said. “So a lot of times people will look and say, ‘Well, the GDP looks OK, unemployment is still low. What’s anybody complaining about?’ Small businesses feel these changes first. They feel them before other people feel them, and that’s something I think we really need to pay attention to.”

He said the SBAM heard concerns from business owners about increasing cost pressure half a year before the Federal Reserve said there was an inflation problem.

“When small businesses say they have a problem, it’s probably best to believe them,” he said.

Isely agreed, explaining that national numbers have a two- or three-month lag.

“To see what’s happening right now, you actually have to talk to businesses and consumers on the ground,” he said.

Calley noted that confidence levels vary by industry, with tech companies doing well and the hospitality business making a comeback, while industries like downtown commercial real estate are seeing more problems.

The biggest thing small business owners are concerned about is the economy generally, with 23% citing it as the biggest problem they’re facing. The second biggest issue is inflation (21%), followed by the availability of labor (19%).

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Calley said some of the lack of optimism stems from a lot of uncertainty. He said there are concerns about interest rates going up and there are still big shifts happening since the pandemic in patterns like how people buy, live and work.

“It’s still in a pattern of settling,” he said. “Then you stack on top of that the uncertainty of what’s happening around the globe — whether the war in the Middle East could potentially cause increases in energy costs or whether or not supply chain disruptions could be could be the result of things happening in Southeast Asia, with growing tensions with China and Taiwan.”

There are always things business leaders are uncertain about. But this year, Calley said, there’s “just one stacked on top of another.”

Many businesses are also dealing with a consumer base that’s slowing down, Isely said, particularly businesses that have a young consumer base. People are spending less money, especially on luxuries. That can make it hard for small businesses to plan.

“Starting late in 2023 and carrying into 2024, we’re hearing a lot of stories about decreased activity that really hitting a wall,” Calley said. “(Consumer businesses are) on the edge of their seat, ‘Is this going to come back?'”

He said many businesses will likely take a “wait-and-see approach” when it comes to things like potential expansions.

2024 being an election year adds another level of uncertainty. While it’s not uncommon for people to be hesitant to expand and invest during an election year, Isely said typically economists don’t worry too much about political movements. But this year, the policies from both sides have a “wide gap,” Isely said, “wider than what we normally see” from an economic perspective.

And economists are starting to worry.

“We were less worried about it than everybody else was before, so everybody’s getting worried about it,” Isely said. “They’re getting worried: ‘How are my regulations going to change? … How is my access to credit going to change? How is my ability to import or export going to change?’ All of these things make a big difference to them very quickly.”

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Isely noted that in West Michigan, small businesses are less worried about the government compared to big businesses, with 18% of small businesses reporting a negative impact from the government this year, compared to 30% of large businesses.

“It may be because small businesses are more impacted by the state level, and big businesses have to worry about this cross current across the entire country,” he said.

Isely said small businesses are having a harder time getting access to credit compared to big businesses — which are not seeing as big of a drop in confidence — and they’re more dependent on labor than big businesses.

In West Michigan, 29% of big businesses have been able to shift labor to automation, compared to 22% of small businesses. Statewide, 26% of small businesses told the SBAM they’re using artificial intelligence for things like marketing, data analytics, virtual assistants and business operations.

Calley said he was “pleasantly surprised” by the amount of Michigan small businesses using AI.

“Artificial intelligence maybe can help them deal with that (labor) shortage, but then also to operate more efficiently and to be more nimble to make better decisions on available data,” he said. “I was really quite impressed that the adoption among small businesses is moving that quickly.”

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While 28% of Michigan small business owners are pessimistic about the next six months, 44% are cutting expenses in order to prepare for a possible recession.

Calley doesn’t anticipate there will be a recession in the traditional sense, saying there aren’t enough people for a high unemployment rate.

“You can have significant slowing in hiring and it won’t cause the unemployment rate to jump up,” he explained. “We just don’t have as many people. More people die than are born every year. We’re losing the migration competition. We have outbound net outbound migration each year, especially here in Michigan.”

He also said there’s not enough real estate for that to see a plummet.

“The ways that we would traditionally think of as a recession, I think that conditions have changed to where it’s unlikely to happen,” he said. “(But) that doesn’t necessarily mean that people don’t have anything to worry about.”

Calley said there’s been a shift in economic activity away from local communities and to bigger multinational corporations.

“You could look at and say, ‘Well, it’s not a recession because GDP continued to grow.’ But underneath that growth in GDP, significant shifts moved away from the activities that’s happening right in our communities, and we will pay a penalty for that,” he said.

Overall, business owners “aren’t feeling particularly comfortable,” Calley said.

“A lot of the growth in jobs happens on that small business side,” Isely said. “If they’re worried and pull back even just a little bit on their hiring, it can cause a big change in the economy very quickly.”

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