Sales at small businesses in the United States declined in June compared to the previous month, as consumers scaled down their spending on goods and services due to high prices. According to a report by fintech company Fiserv, the Fiserv Small Business Index decreased by four points to 140 last month. While small-business sales and transactions grew on a yearly basis, the pace of growth slowed down month over month.
The decline in spending was most significant in sectors such as restaurants, retail, and accommodation. Out of the 34 subsectors in the index, food services and drinking places had the highest sales volume, followed by specialty trade contractors and professional, scientific, and technical services. However, all three subsectors saw sales and transactions decline in June. Demand for pool servicing and general carpentry cooled down in the specialty trade contractors subsector, and growth in professional, scientific, and technical services slowed down in recent months despite strong overall annual growth.
In the retail sector, only general merchandise experienced positive monthly sales growth. Gasoline stations, motor vehicles and parts dealers, building materials, and health and personal care saw the biggest sales declines. Prasanna Dhore, chief data officer at Fiserv, explained that consumers reduced both spending and foot traffic across retail and service-based businesses as the quarter came to a close.
Mr. Dhore attributed the lower average amount spent per store visit in June to inflation and consumer budget consciousness. He also mentioned “short-term seasonal demand shifts” in several sectors as contributing factors to the slowdown in the index.
The decline in small-business sales aligns with the increasing cost of living for households. From 2020 to 2023, the average prices of grocery items rose by almost a quarter. Items like coffee, sugar, bread, sugar, and ham saw prices jump by over a third. Additionally, people now have to allocate nearly a quarter of their monthly incomes to afford a median-priced single-family home. These rising costs have put strain on customer budgets, leading individuals to be more mindful of their spending.
While consumer spending trends have become difficult to decipher, National Retail Federation Chief Economist Jack Kleinhenz remains cautiously optimistic about the situation. He believes that spending has been uneven but is still in good condition, despite slower payroll growth, subdued consumer confidence, and price deflation for retail goods. Kleinhenz expects consumer spending trends to continue, although they may be tempered by softer employment and income growth.
The burden of rising prices is also affecting small businesses, according to a recent report by the National Federation of Independent Business (NFIB). In June, 21 percent of small-business owners cited inflation as the top issue they faced. NFIB Chief Economist Bill Dunkelberg noted that increasing compensation costs have led to higher prices across the board, with no relief from inflation in sight. The 12-month inflation rate in June reached 3 percent, a level that hasn’t been reached since June 2023.
Although small businesses are facing challenges, they are increasingly optimistic about the future, according to the U.S. Chamber of Commerce’s Small Business Index report for the second quarter of 2024. The report states that plans to increase staff and investment are up this quarter, and revenue expectations for next year are at record levels. More than seven out of 10 respondents expect revenue increases in 2025, regardless of business size or sector.
Younger businesses, those in operation for less than 10 years, are particularly optimistic about future hiring and higher investments compared to businesses that have been operating for over a decade. Small businesses play a crucial role in the U.S. economy, accounting for 99.9 percent of all businesses in the country. Between 1995 and 2021, these businesses were responsible for almost two-thirds of new job creation in the United States.
