Business conditions improve as inflation slows

Washington, DC CNN

According to a Monday survey by economists and analysts, American businesses will do better in the months to come.

The steady decline in inflation this year has increased Americans' confidence. The Federal Reserve is now more likely to pull off a soft landing, where inflation returns to its 2% target.

According to the latest Surveys of Consumers from University of Michigan, Americans have not felt so optimistic since September 20, 21. US businesses are also more optimistic, as hiring is easier and wholesale prices have decreased.

The National Association for Business Economics published a survey on Monday that showed businesses are enjoying the improved economic conditions.

In a press release, NABE President Julia Coronado stated that the results of the July 2023 NABE Business Conditions Survey show an economy with rising sales and profits as material costs decrease and wages stabilize.

The latest survey revealed that respondents who reported rising sales continue to outpace those reporting falling sales. In fact, the index has increased from 30 to 33 over the last three months.

A majority of respondents said that the wages in their companies were unchanged. This is the first time since 2021 that more economists have reported no wage increases than increasing wages.

The net share of respondents who reported higher profit margins increased to zero, which was the 'first non-negative outcome after four consecutive surveys'

Slower inflation without labor-market pain

A number of surveys reflect a newfound optimism, despite a slowing inflation and a robust job market.

Consumer Price Index increased by 3% in the month of June. This is a slower rate than that which reached a four-decade peak of 9.1% in 2022. The number of jobs added by employers last month was impressive, with the unemployment rate remaining below 4%.

The Fed has done a good job in bringing down inflation. It doesn't take a recession for the Fed to achieve this, but research shows that the labor market needs to cool down further.

Some Fed officials believe in the possibility of a softer landing.

Austan Goolsbee, Chicago Fed president, said this earlier in the month: 'I think we're on a path to avoid recession.'

Some, such as Bank of America CEO Brian Moynihan, now expect the recession to come later than anticipated, given the slowdown in inflation and the resilience of our economy.

A different economic landscape

The business community is optimistic about the lower prices and improved supply chain.

According to the latest Beige Book from the Fed, which is a compilation of responses from business owners across the country, "A contact in furniture reported that prices could decrease in the future, after recovering previous losses due to excess freight costs."

Last month, the annual producer price inflation rate reached its lowest since August 2020. It rose by only 0.1% in the 12 months ending June. This measure does not directly correlate with the Consumer Price Index but it does show a slight easing in pressure on businesses.

The Beige Book has also shown that hiring is becoming easier. Data from the Bureau of Labor Statistics shows the job market to have cooled a little, although finding talent continues to be a problem.

In the latest National Federation of Independent Business survey, 42% of respondents said that they had difficult-to-fill job openings. This is a decrease from last month, but still a high percentage. Over 90% of small business owners reported that they had no or few qualified applicants to fill their open positions.

Fed officials closely monitor the labor market, as higher wages feed into inflation.

The Fed will begin its two-day meeting on Tuesday. It is expected to announce an increase of a quarter point in interest rates Wednesday, due to fears that the inflation rate is still not on track to reach 2%.