Financial news programs are focused on whether, when, and how long a recession might plague the economy. The “whether” is trending toward a yes, the “when” is drifting toward sooner rather than later (2023) and the severity is all over the map from just a slowdown to a severe crash in economic activity. Consumer sentiment (University of Michigan) is at a 50-year low, but consumers do have a lot of savings piled up to get them through hard times, but revolving credit is now at a record high level. Consumer spending has been trending down and more small business owners report sales declines in recent months than report gains, but only by a slim margin.

Small businesses are the interface between big producers and consumers. Most service providers are small (no barber shops with 500 chairs) and few buy hardgoods directly from the factory (cars are purchased from dealers, not factories). Most new houses and structures are built by small construction firms. When the consumer mood and spending changes, small businesses will be the first to know, and they will send the message up the production chain.

U.S. small business in total would be the third largest economy in the world, behind the entire U.S. economy and China. It is also the “R&D” sector of the economy, virtually every large U.S. business started out small and they are major holders of patents. Their views about future developments (politics, economic policy, weather, market conditions) shape their spending and hiring decisions i.e., GDP. NFIB has surveyed a sample of its 300,000 member firms for the past 48 years to ascertain their views and plans. Asked about expected business conditions over the next six months, a record low -53% expect business conditions to improve. Not seasonally adjusted, 6% expected improvement, 59% expected business conditions to be worse, the rest expect no change or provide no opinion, a very negative outlook.


The National Bureau of Economic Research (NBER), a group of top economists, officially dates business cycle peaks and troughs, but can’t declare a recession until after it is over. Chart 1 approximately marks recent recessions, which last from 1 to 5 months in duration (NBER dates monthly cycles, the chart is quarterly). The chart’s message is clear, major declines in expected business conditions always signal a major decline in economic activity will occur, i.e., a recession.

Chart 1:

Other survey questions provide similar messages. The percent who view the current period as a good time to expand is just 6%, the net percent expecting real sales volumes to increase is -15%, the net percent expecting easier credit condition, -4%, and the net percent reporting positive earnings trends -24%. Only a net 1% plan to order new inventories. The chart makes it clear that the likelihood of a decline, possibly large, is virtually certain based on historical data. Then again, history is known for not always repeating itself. The economy will soon reveal its true fate. Best to be prepared.


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