President Biden and Federal Reserve chair Jerome Powell insist the country can avoid a recession, but don’t try telling that to small business owners already facing sliding sales amid soaring inflation. For many of them, the hard times are already here.
Jorge Aurichi, who owns Level Five Painting in Newton, sensed the economy shifting in March when gas prices surged after Russia invaded Ukraine. Even though spring and summer are prime seasons for painting, Aurichi noticed a 20 percent drop in calls from prospective clients compared with last spring.
He expected his business to grow in 2022, but now he forecasts flat revenue for the year, even as costs for labor, paint, and gas soar. One example: A gallon of oil-based primer that two months ago cost $24 is now $33. That’s on top of a nearly 25 percent increase in the price of gas for his fleet of trucks and vans since last year.
“If we open our eyes, the recession is here already,” said Aurichi.
Similarly, Leodalys Montero, who owns D’laly’s Beauty Salon in Dorchester and Roxbury, says her business is slowing, with revenue off by 30 percent in May alone. Fewer customers are coming in to get their hair done as they struggle to keep up with the higher costs of groceries and gas. Worried about a downturn, Montero sold her Jamaica Plain shop in May and is paying herself less.
Still, Montero had no choice but to raise prices two weeks ago because the costs of shampoo and conditioners have been going up. A wash and set now costs $40, a $5 increase.
“My customers are watching the dollars even more. I don’t blame anyone,” she said. “I want to be optimistic [but] I have a lot of fears with this economy.”
Only 44 percent of economists in a recent Wall Street Journal survey indicate there could be a recession over the next year, which is defined as a significant decline in economic activity across sectors that lasts more than a few months. That’s because fundamentals remain solid. The economy appears to be growing, and consumers also still have excess cash they saved during the pandemic.
That’s in sharp contrast to the sentiment of CEOs and small-business owners who are closer to the day-in, day-out rhythms of the economy. About 76 percent of CEOs globally expect a recession by the end of 2023 or believe it’s already here, according to the latest survey by The Conference Board, a corporate think tank.
Among small-business owners, 48 percent are feeling down about the economy, and within that subgroup, 22 percent are “highly pessimistic,” according to a recent national survey of close to 9,500 small-business owners by Alignable, an online network for small businesses. A striking 60 percent said that inflation has hurt their business more than COVID-19.
Even more telling is how they have started to prepare for rougher days ahead. In Massachusetts, 40 percent of small-business owners are reporting they don’t plan to hire this summer because they can’t afford to add payroll, according to Alignable. That may explain why there are also fewer concerns about a labor shortage, with only 48 percent of small-business owners in Massachusetts saying they have trouble finding workers to fill open positions. That’s down sharply from 72 percent in Alignable’s May survey.
One of those businesses not hiring is Pauline’s Gifts in Gloucester. Owner Pauline Bresnahan is also cutting back on ordering to reduce inventory. She used to place four orders a year — her shop is known for selling American flags, wind socks, and gifts by local artisans; this year it will be two.
She would rather see her shelves empty than be stuck with unwanted products at the end of the year.
“Every bit of my inventory comes out of my pocket,” said Bresnahan. “I am being very cautious.”
Bresnahan credits support from local shoppers with helping her get through the pandemic. In 2021, they helped deliver the strongest Christmas season in the 23 years she has owned the shop. She also counts on summer tourists to boost sales. This year she is seeing more day trippers than visitors from outside the region ― an indication that people are scaling back vacation plans.
Complicating the fragile success formula for shops like hers, the weather hasn’t been especially summery so far, which means fewer beachgoers and ― by extension ― fewer people browsing at Pauline’s Gifts.
“The summer traffic is my biggest concern if the weather doesn’t change drastically,” Bresnahan said.
Even in sectors that ride the recession better than others, such as the food industry, consumer spending habits are changing. At Chex Finer Foods, a Mansfield distributor that sells specialty brands such as Tate’s Cookies and Stonewall Kitchen to grocery stores, promotional items are selling at three times the rate of regular-priced products, a sign that consumers are becoming more sensitive to the cost of groceries, according to Chex president Jeremy Isenberg.
Isenberg hasn’t changed his forecast for the year because even during bad economic times, people still need to eat. But he is worried about how restaurants will fare if people pull back on dining out.
“I’m not an economist, but it’s going to be rough economic waters ahead,” he said, predicting a wave of layoffs and business closures in the near future.
The construction industry is especially sensitive to an economic downturn because of the amount of money required to get a project launched, and the long wait for a return on the investment. With the Fed aggressively raising interest rates to tame inflation, the cost of borrowing is becoming more expensive, which means fewer projects are likely to go forward.
Construction sites are still busy, but the industry is bracing for a slow down starting in the fourth quarter, said JocCole “JC” Burton, CEO of Maven Construction, a Boston firm with about 50 people. Since April, she has been reining in spending, such as cutting travel expenses to conferences.
“Nearly all of my developer friends recommend that we buckle up,” said Burton.
Level Five Painting’s Aurichi has also started to prepare for the downturn. Having a house painted is a major expense, so for the first time he is working with a financial services company to offer interest-free loans to customers, a practice more common in sectors such as the furniture industry.
“We never thought about doing financing, but with all the signs of a recession coming, I was thinking, ‘What can we do to keep business coming?’” he said.
Aurichi, like many other small-business owners, has been on a financial roller coaster for more than two years. When COVID-19 shut down the economy in the spring of 2020, he was unable to secure a loan in the first round of the federal Paycheck Protection Program. He began cold-calling former clients to drum up business so he could keep his staff of two dozen working. The one-man marketing campaign worked well enough to avoid layoffs.
Some forecasters say that even if the country does officially fall into a recession, it will be a mild one. Aurichi is not so sure.
“Small businesses are going to take most of the damage of the recession,” he said. “My main advice is to get prepared.”
Shirley Leung is a Business columnist. She can be reached at firstname.lastname@example.org.