Report
Published February 22, 2022
Commercial Commercial Insights Credit & Economic TrendsThe fourth quarter of 2021 enhanced the pressure felt by small businesses as the largest wave of COVID-19 hit the US. In addition to the effects of pandemic outbreak of labor and consumer engagement, an inflationary surge, largest increase since 1982, coupled with pandemic-related supply-and-demand imbalances, weighed heavily on US small businesses along with a notable impact to consumer sentiment.
Although workers were getting raises in the currently tight job market, rapid price increases are eroding consumers' earning power. Average wage earnings went up by 4.0% in Q4 '21 vs. the previous year, yet a 7.5% increase in inflation results in a net decline in real earnings. Workers' money is not going as far as it used to. Rising wages, however, put pressure on businesses' payrolls who may be forced to pass those costs to consumers.
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- Business investment was already slowing before the trade war, and uncertainty is now at an all-time high.
- Banks may tighten lending further due to rising business delinquency and unrealized losses in securities portfolios.
- The labor market, while stable, is struggling with low hiring rates, making it harder to absorb job seekers.
- A prolonged decline in business investment could trigger higher unemployment if layoffs accelerate.