According to a recent survey from Goldman Sachs, a credit crunch threatens growth at 85 percent of small businesses, imperiling expansion plans by 67 percent of those companies and prompting 21 percent to doubt their long-term survival.
Nearly four out of five small businesses (78 percent) fear that they may fail to gain access to capital under current conditions, and only 29 percent say that they can afford to take out a loan, the survey found.
A National Association for Business Economics (NABE) survey also revealed a grim view on borrowing, with 55 percent of economists saying that higher interest rates pose the biggest threat to the outlook, exceeding the challenge from inflation. In a July survey, only 24 percent identified higher borrowing costs as a leading risk.
The economy’s recent performance has consistently exceeded the prior expectations of many who expected a recession by now, and the outsized growth reported for the third quarter— 4.9 percent at a seasonally adjusted annual rate—only adds to that.
Growth was nothing short of robust. However, it is not the only sign of strength. Average monthly job growth in the quarter was well over 250,000, and the job gains remain broad-based across most industries. Initial claims for unemployment insurance remain remarkably low.
Despite the strong growth, wage and price pressures continue to abate. Annualized average hourly earnings growth over the past three months was 3.4 percent, and inflation as measured by the core consumer expenditure deflator was 2.4 percent. Both are in line with the Federal Reserve’s inflation target.
While it is much too early to think inflation is sustainably back to the Fed’s target, it is nonetheless impressive. Yet, the outlook turns darker. The recent pace of growth is likely unsustainable as high interest rates take their toll, so recession risks will remain high well into next year.
Job gains will throttle back as the full impact Fed’s unprecedented interest rate hikes, meant to rein in inflation, are felt. Additional weights are numerous including the fallout from the banking crisis, and impact of the debt ceiling agreement, some reduction in spending by lower-income consumers who must start repaying student loans and find pandemic era loosening of welfare eligibility requirements ending.
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