As we enter 2024, small businesses face both opportunities and challenges in the evolving economic landscape. Brodie Oldham, Experian’s V.P. of Commercial Data Science has prepared an extensive review of the current landscape in the latest report.
Here are some key takeaways:
The Labor Market is Cooling
The red-hot labor market of 2021-2022 is cooling. Job openings have declined 19% from last year. This gives employers more leverage in hiring and tempers wage growth that drove inflation. However, it means consumers have less discretionary income to drive spending. Small businesses should budget conservatively around labor and consumer demand.
Prices and Inflation Easing
Inflationary pressures are beginning to ease after hitting 40-year highs in 2022. Consumer and producer prices are rising at a slower clip, though still elevated. This relief gives small businesses some reprieve after two difficult years of escalating costs, but staying lean on operations and monitoring inflation remains prudent.
Consumers Remain Resilient
Despite economic uncertainties, consumers continue spending more than expected. Holiday sales closed 2023 at a robust 5.8% growth over 2022. Savings rates have also rebounded. This resilience bodes well for small businesses heading into 2024. However, high debt servicing costs and inflation strain consumer budgets. Small businesses should focus on value, loyalty programs and personalized service to attract recurring sales.
Credit Environment Tightening
As the economy cools, lenders are tightening credit standards and limiting exposure to riskier borrowers. Interest rates remain high after aggressive Federal Reserve hikes. This may require small businesses to look beyond traditional lenders for financing needs. Building strong cash reserves and maintaining good credit health is critical to accessing affordable capital.
Recession Risk Still Looms
While key indicators show the economy avoiding an immediate downturn, global headwinds such as supply chain disruptions, market volatility and geopolitics could slow growth in 2024. Small businesses should stress test their models for revenue scenarios and have contingency plans ready. Cost control, customer retention and strategic partnerships will help small businesses stay resilient if conditions deteriorate.
Technology and Innovation
AI and digital solutions will streamline lending processes and allow for faster, data-driven loan decisions. Small businesses should embrace digital tools to enhance customer experience, operational efficiency and data analytics capabilities. Targeted digital marketing and social media outreach will also help small businesses boost visibility and sales.
Despite risks, small businesses have proven their mettle handling successive economic shocks. By monitoring trends proactively, stress testing their models, and leveraging technology, small businesses can continue to adapt and innovate in 2024. Though the terrain ahead remains challenging, the resilience and tenacity of small business owners points to brighter days ahead.
