Research
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Summary & Highlights

Small Businesses are Showing Increasing Caution

Woman on video conference with coworker

With new variants causing a rise in COVID-19 cases, the latest MetLife & U.S. Chamber of Commerce Small Business Index finds that small businesses are showing increasing caution about the current and future economic climate.

This quarter’s Small Business Index score is 56.6, down from last quarter (60.0 in Q2), but in line with the beginning of the year (55.9 in Q1 2021).1 The survey—conducted between July 16 – 30, 2021 as the Delta variant began to spread rapidly across the country—shows signs that small business staffing and investments (both current and future) may be hitting a plateau.

However, overall views of their own business’s health and cash flow remain stable this quarter. Separate from the Index score, there are broad concerns about revenue, inflation, and the impact of rising costs generally. The survey also found that more small business owners, from every background, agree that minority-owned small businesses face more challenges than non-minority-owned businesses.

Gauge showing 56.6 for the Small Business Index
Q3 2021 SBI:56.6
This quarter’s Small Business Index score is 56.6, down from last quarter (60.0 in Q2), but in line with the beginning of the year (55.9 in Q1 2021).

Small businesses grow more cautious

A big theme from this quarter’s survey is the growing caution of small businesses when it comes to future hiring and investment. There is evidence of this caution across a number of different metrics.

Compared with the past year, fewer businesses (29%) report plans to increase investment in their business over the next year (was 35% in Q1). This quarter 48% said they plan to invest the same amount over the next year (up from 42% last quarter and up from 37% in Q1).

Most small businesses report retaining the same amount of staff over the last year. Around three in five (68%) small business decision makers say they have retained the same size staff over the past year, while 17% said they had reduced staff over that time. A majority (62%) anticipate retaining the same size staff next year (28% anticipate increasing staff) and 6% plan reducing staff. This contrasts with last quarter when fewer reported retaining the same amount of staff. Then, 57% reported retaining the same size staff over the last year and 23% percent reported they reduced staff. Additionally, 52% said they planned to retain the same size staff and 11% said they planned to reduce staff over the next year.

68%
of small business decision makers say they have retained the same size staff over the past year
68%
of small business decision makers say they have retained the same size staff over the past year
Female worker in warehouse placing shipping label on package

However, overall current business health and cash flow remain unchanged, with most businesses feeling generally optimistic. More than half (55%) of small business owners believe the health of their business is good and two-thirds (66%) believe their cash flow situation is good. Both of these measures remain statistically unchanged from the previous quarter and had been steadily climbing back to pre-pandemic levels—but have yet to reach them. (65% said the overall health of their business was good in Q1 2020, 80% were comfortable with their cash flow in Q1 2020).

While most small businesses are increasingly cautious, they do recognize modest improvements to the country’s economy. This quarter, around one in three (34% of) small business owners say the U.S. economy is in good health: higher than any point since the pandemic began. However, very few (just 7%) say the economy is in “very good” health. Instead, the improving views of the national economy come from more businesses saying the country’s economy is “somewhat good.” A similar pattern emerges regarding the economy in their local area: 31% see an average local economy, 14% say it is “very good,” and 26% say the local economy is poor.

Small businesses see revenue (or the lack thereof) as their single biggest post-COVID challenge. Although most (58% of) small businesses expect their revenue to increase in the next year (on par with last quarter), 34% of small business owners believe that revenue is the biggest challenge facing small businesses coming out of the pandemic. This is followed by: compliance with COVID-19 safety protocols (23%), supply chain issues (19%) and inflation costs (19%).

Small Business Index Score 2017 Q4 - 2021 Q3

Small Business Index Score 2017 Q4 - 2021 Q3 Chart

Growing concerns over inflation, supply chain constraints

The vast majority of small businesses (72%) are finding it difficult to manage higher costs due to inflation, as they work to recover from the pandemic.

About three quarters (73%) of small business owners also say that rising prices have had a significant impact on their business in the past year.

As with inflation, supply chain issues are also giving businesses concern. 61% of small business owners say it is difficult for them to manage disruptions to their supply chain and 62% say their supply chain has been dramatically disrupted by the pandemic.

73%
say that rising prices have had a significant impact on their business in the past year.
73%
say that rising prices have had a significant impact on their business in the past year.

More positive attitudes toward minority-owned small businesses

A significant majority (66%) of small business owners, regardless of sector, area of the country, or racial/ethnic background, agree that minority-owned small businesses face more challenges than non-minority-owned businesses.

After a year that sparked diversity, equity, and inclusion initiatives throughout the workforce, more small businesses now believe this to be true when compared to early 2020 when they were last surveyed on this topic (when 52% said minority-owned small businesses faced more challenges).

66%
agree that minority-owned small businesses face more challenges than non-minority-owned businesses.
66%
agree that minority-owned small businesses face more challenges than non-minority-owned businesses.

Index Highlights

The MetLife and U.S. Chamber of Commerce Small Business Index score for Q3 is 56.6. The Index score for Q2 2021 was 60.0; in Q2 2020 it reached an all-time low of 39.5.2
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Fewer small businesses plan to increase investment.

Compared with the past year, fewer businesses (29%) report plans to increase investment in their business (was 35% in Q1).
Learn more
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Half of small businesses report problems finding staff.

About half (50%) of small businesses say it is difficult to recruit and hire enough employees to fill open positions and to compete for talent with other small (52%) and large (57%) businesses in their area.
Learn more
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Most small businesses plan to keep staffing levels the same.

Around three in five (68%) small businesses say they have retained the same size staff over the past year.
Learn more
#

Small businesses see modest improvements to the economy.

Around one in three (34% of) small business owners say the U.S. economy is in good health: higher than any point since the pandemic began.
Learn more
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Small businesses see mixed local economy.

31% of small businesses surveyed see an average local economy, 14% say their local economy is “very good,” but 26% say the local economy is poor.
Learn more
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Overall business health and cash flow remain unchanged

More than half (55%) of small business owners believe the health of their business is good and two-thirds (66%) believe their cash flow situation is good.
Learn more
#

The vast majority of small businesses are finding it difficult to manage inflation.

72% of small businesses say they find it difficult to manage higher costs due to inflation as they work to recover from the pandemic.
Learn more
#

Small businesses see lack of revenue as biggest post-pandemic challenge.

58% of small businesses expect their revenue to increase next year, but 34% of small business owners believe that revenue is the biggest challenge they face coming out of the pandemic.
Learn more
#

More say minority-owned businesses face unique challenges.

Two-thirds (66%) of small businesses now acknowledge that minority-owned small businesses face more challenges than non-minority-owned businesses.
Learn more
#

Fewer small businesses plan to increase investment.

Compared with the past year, fewer businesses (29%) report plans to increase investment in their business (was 35% in Q1).
Learn more
#

Half of small businesses report problems finding staff.

About half (50%) of small businesses say it is difficult to recruit and hire enough employees to fill open positions and to compete for talent with other small (52%) and large (57%) businesses in their area.
Learn more
#

Most small businesses plan to keep staffing levels the same.

Around three in five (68%) small businesses say they have retained the same size staff over the past year.
Learn more
#

Small businesses see modest improvements to the economy.

Around one in three (34% of) small business owners say the U.S. economy is in good health: higher than any point since the pandemic began.
Learn more
#

Small businesses see mixed local economy.

31% of small businesses surveyed see an average local economy, 14% say their local economy is “very good,” but 26% say the local economy is poor.
Learn more
#

Overall business health and cash flow remain unchanged

More than half (55%) of small business owners believe the health of their business is good and two-thirds (66%) believe their cash flow situation is good.
Learn more
#

The vast majority of small businesses are finding it difficult to manage inflation.

72% of small businesses say they find it difficult to manage higher costs due to inflation as they work to recover from the pandemic.
Learn more
#

Small businesses see lack of revenue as biggest post-pandemic challenge.

58% of small businesses expect their revenue to increase next year, but 34% of small business owners believe that revenue is the biggest challenge they face coming out of the pandemic.
Learn more
#

More say minority-owned businesses face unique challenges.

Two-thirds (66%) of small businesses now acknowledge that minority-owned small businesses face more challenges than non-minority-owned businesses.
Learn more
1. Beginning in Q2 2020, the MetLife/U.S. Chamber of Commerce Small Business Index survey has been conducted via online surveys, in place of the typical phone-based approach. This methodological shift is in response to anticipated lower response rates in dialing business locations as a result of mandated closures related to the COVID-19 outbreak. While significant changes in data points can largely be attributed to the recent economic environment, switching from a phone to online approach may have also generated a mode effect.
2. Since we moved to monthly (or near-monthly) tracking beginning in March 2020, the Index ratings for Q2 and Q3 are based on an average of responses from all surveys in that quarter. The Q3 Index was calculated based on 1,100 interviews from the July and September surveys. The Q2 Index was calculated based on 1,500 interviews from the April, May, and June surveys. The lower Index score in Q2 is driven by the sudden, major drop in business confidence regarding cash flow, overall health, and future expectations, in the wake of the COVID-19 pandemic. As sentiments have slowly begun to rebound or stabilize, the Q3 Index score responded accordingly. The Q1 Index was calculated based on 1,000 telephone interviews in December 2019 and January 2020. While significant changes in data points from Q1 to the proceeding quarters can largely be attributed to the recent economic environment, switching from a phone to online approach may have also generated a mode effect.