Survey finds inflation, labor concerns mixed with optimism

SYRACUSE, N.Y. — While a majority of small- and mid-sized businesses anticipate a recession this year, according to JPMorgan Chase & Co.’s 2023 annual Business Leaders Outlook survey, the outlook is not all doom and gloom according to one area market leader.

A total of 65 percent of mid-sized businesses and 61 percent of small businesses expect a recession this year, particularly in light of inflation challenges, the survey finds. Overall optimism is a bit low, says John Huhtala, market executive for middle-market banking and specialized industries at JPMorgan Chase in Syracuse. However, “particularly with the Micron news, there’s a bit more optimism with small businesses,” he notes.

The dividing line between small- and mid-sized businesses comes down to nimbleness and the ability to respond to economic factors, he says. “It’s easier for small business to be nimble,” and address factors in the near term, Huhtala notes. Those businesses are also less impacted by issues such as sourcing and exporting, for example, which may affect larger businesses.

The region’s mid-sized businesses are slightly less optimistic, particularly as they struggle with geopolitical concerns and a strong dollar that weakens demand for exports, he says.

Across the board, inflation remains a challenge for businesses of all sizes. According to the survey, 91 percent of mid-sized businesses are experiencing inflation difficulties, and 45 percent of small businesses list inflation as their top challenge for the year ahead. Inflation is forcing businesses to re-evaluate approaches to things like pricing, sourcing materials, and running operations.

As a result, 83 percent of mid-sized businesses have passed at least some costs on to consumers. About 68 percent of small businesses have raised prices on certain products and services.

The survey findings show 94 percent of small businesses say inflation has impacted expenses, with 38 percent of those indicating expenses have increased by at least 11 percent. The drivers of that increase include wages and benefits along with shipping and supply-chain expenses.

The second-largest concern behind inflation is the labor shortage and that is true across almost all industries, Huhtala says. “It’s a near-term challenge,” he notes, adding that local leaders and businesses working together to address the issue is the key.

To cope with these challenges, including the continuing labor shortage, more mid-sized businesses are leaning on smaller businesses more, Huhtala says. Businesses have also learned to adapt and be more thoughtful and strategic about how they operate. Businesses struggling with labor issues may look to solutions like automation, for example, to overcome gaps in the workforce, he notes.

Central New York has much to be proud of and a lot to be excited about, especially with Micron coming, Huhtala contends. It’s important for the region to welcome new businesses and make sure to continue to help businesses already here continue to grow and succeed.

In spite of inflation and other concerns, businesses in general are optimistic about sales growth and profitability for the coming year with 69 percent of small businesses and 63 percent of mid-sized businesses predicting increased sales.

Looking ahead, it’s hard to tell what the next 12 months will bring for sure, he says. Overall, JP Morgan forecasts muted U.S. economic growth between 0.5 and 1 percent with a mild recession.

Businesses should stay in tune with economic trends including consumer spending, inflation, and labor markets, as well as to optimize working capital by using tools such as supply-chain financing, and work to recession-proof their companies by remaining flexible and making sure their balance sheet is in order, JP Morgan Chase advises.

Over the past two years, businesses have learned how to adapt, Huhtala says. They have also had time to anticipate the challenges ahead, putting things in place for an improved economic outlook for 2024, he adds.