CNBC | Momentive Small Business Survey

53% of small-business owners think a recession is coming


Main Street has caught up to Wall Street, at least when it comes to increased fears of a recession.

A narrow majority of small-business owners across the United States expect a recession in the next year, according to the latest CNBC/SurveyMonkey Small Business Survey. This was the first time in the two-year-plus history of the survey that small-business owners were asked for their recession forecast, but the broader survey trends over time indicate more caution on the part of entrepreneurs as multiple readings of small-business sentiment have declined.

The record level for the CNBC/SurveyMonkey Small Business Confidence Index was reached in the third quarter of 2018 and has declined since then. Expectations for revenue and hiring, as well as over business conditions, also have declined from peak levels in Q3 2018.

The survey — which was conducted by SurveyMonkey among more than 2,200 small-business owners across the country between Jan. 28 and Feb. 4 — does not indicate a major retreat on Main Street when the results are viewed on a longer-term basis. The current levels for these indicators remain much higher than they were a few years ago. The confidence decline from the third-quarter 2018 peak level occurred over the same period of time when the U.S. stock market, which soared into the third quarter of last year, suffered a dramatic decline with many sectors of the economy ending 2018 in a correction (decline of 10 percent) or bear market (decline of 20 percent).

"While a slim majority of small-business owners see a recession ahead, there's little sign that they think it's imminent," said Jon Cohen, chief research officer at SurveyMonkey. "The small-business index has tapered off from its peak in Q3 2018, but it certainly hasn't hit a wall, and several of its core components remain strong," Cohen said.

Decline from Q3 2018 peak

Business outlook Q1 2019 Q4 2018 Q3 2018
Described business conditions as good52 percent55 percent58 percent
Expect increased revenue57 percent58 percent62 percent
Plan to increase full-time staff28 percent29 percent33 percent
Small business confidence index level585962

Source: CNBC | SurveyMonkey Small Business Survey, Q1 2019

Government dysfunction is one place to look for a cause of declining confidence, especially with the recent shutdown and impasse over immigration reform between President Donald Trump and the Democratic Party opposition newly in control of the House. Only 20 percent of small-business owners said the shutdown was a major concern for their business.

But the shutdown had significant effects on businesses in certain areas of the country where consumer bases are heavily employed by government agencies, and it did lead to sales slowdowns for one-third of all businesses, as well as management frustrations for owners across the country. The CNBC/SurveyMonkey data revealed that non-small business owners are more likely to think small businesses would be hurt by a shutdown than the business owners actually were.

There is a deadline this Friday for a border deal to remove the threat of another shutdown. No agreement has been reached yet on Capitol Hill.

Recession talk is everywhere

Wall Street surveys also are revealing elevated recessionary fears. The CNBC Fed Survey conducted in January, which includes economists, fund managers and strategists, placed the probability of a recession in the next 12 months at 26 percent, the third straight increase and the highest since January 2016, and the highest of the Trump presidency. A recent Wall Street Journal survey of economists finds fears of a recession at a seven-year high.

A nationwide survey of more than 10,000 Americans conducted by SurveyMonkey in January also found a high level of recession anxiety, with 63 percent of Americans saying a recession was likely in the next year and only 10 percent saying it was "very unlikely." The SurveyMonkey consumer confidence index also hit its lowest point since December 2017.

The Federal Reserve's recent decision to reconsider and possibly slow planned increases in interest rates, as well as sales from its bond portfolio, which were seen as pressuring the market, are another sign that the economic growth story may quickly have become more fragile than previously anticipated. However, with everyone from small-business owners and individual Americans to central bankers and Wall Street economists worried about a recession, there also is a risk that we "talk" ourselves into a recession, according to former Pimco CEO and now Allianz chief economic advisor Mohamed El-Erian.

"I'm stunned by all this talk of recession," El-Erian told CNBC in late December. "For us to get into a recession, the rest of the world has got to really slow down dramatically. We've got to be careful, because we can talk ourselves into a recession. And that's how bad technicals become bad economics."

He noted that the labor market is strong, wages are going up, business investment is increasing and so is government spending.

Small-business-owner sentiment does vary significantly based on gender and political affiliation. The CNBC/SurveyMonkey data shows that women are much more likely to think a recession is on the way (61 percent vs. 49 percent of men). Recession fears also break down along party lines, with 38 percent of Republicans saying a recession is likely, versus 79 percent of Democrats and 59 percent of survey respondents that identify as independents.

"Small-business owners, like everyone else, tend to see the world through partisan lenses. Republicans who own small businesses, like all Republicans, are relatively dismissive about the prospects of a nearing recession. Democrats, whether they own a small business or not, are more fearful about the chances a significant downturn will hit in 2019," said Laura Wronski, senior research scientist at SurveyMonkey.

The CNBC/SurveyMonkey Small Business Survey is conducted quarterly using SurveyMonkey's online platform and based on its survey methodology.