ECONOMIC PRESSURES
A murky economic outlook has increased pessimism among SMEs, but will it affect spending?
Projecting the corporate strategy, including spending decisions, of small and midsize enterprises poses quite the challenge midway through 2022, and it’s because of a sharp difference in the way those companies’ executives view their financial standing.
Those business leaders’ views of the overall economy in the past few months has turned sharply and decisively pessimistic, with rampant fears of recession amid inflation and staffing challenges. On the other hand, their perception of their own businesses is far sunnier, with expectations of more robust sales and revenue throughout the balance of 2022 and into 2023.
What does that mean for SMEs’ strategy regarding travel spending, especially after the segment was arguable the sturdiest throughout the Covid-19 pandemic? It’s unclear, but it’s certainly possible that most SMEs won’t accelerate travel spending too drastically, even as domestic and international travel restrictions related to Covid melt away, until they have more clarity on the overall direction of the economy and their companies’ place in it.
They’re certainly not enthusiastic about the economy. In the US, only 19 per cent of the more than 1,500 midsize business leaders polled from May 25 through June 10 in JPMorgan Chase’s 2022 Business Leaders Outlook Pulse survey said they were optimistic about the economy in the year ahead, which not only was down from 75 per cent a year ago but was also the lowest figure the financial services giant has ever recorded in 12 years of conducting the survey.
On the other hand, 71 per cent of those same respondents said they were optimistic about their own company’s performance, and 73 per cent project increased sales or revenue in the next 12 months.
“The first half of 2022 has really tested business leaders with pricing pressures and increased interest rates, on top of supply chain- and labour-related issues they were already facing,” JPMorgan Chase Commercial Banking head of research Ginger Chambless said in a statement. “While it’s surprising to see how drastically sentiment has shifted, it is important to note that business leaders are still mostly upbeat when it comes to their companies and areas that they can more directly control.”
Similarly, a survey of small and midsize businesses by CEO coaching and peer advisory organisation Vistage also showed a sharp recent drop in respondents’ confidence in the economy. Vistage’s CEO Confidence Index, a quarterly measurement of CEO sentiment regarding a variety of economic and business factors, dropped 36 per cent year over year in Q2 of 2022.
“The only thing that remains certain for small business CEOs in the year ahead is more uncertainty,” said Vistage chief research officer Joe Galvin in a statement.
Meanwhile, research by Close Brothers Asset Finance found that UK SMEs are keen to invest but are being held back by the impact of inflation. While two-thirds of the 900 businesses surveyed said they plan to seek funding for investment, 54 per cent were concerned about further economic slow-down.
“Businesses have, for some time now, borne the brunt of both rising costs and inflation along with supply chain problems that have made it difficult to plan... while trying to meet customer demands,” says Neil Davies, CEO of Close Brothers’ Commercial Division. “But it’s encouraging to see that firms are still keen to invest despite all the challenges they are facing.”
Until there are signs of prices stabilising, it remains unclear how SME executives’ perceptions of the economy and their own businesses’ performance will translate to decisions on travel spending.
Delta Air Lines, one of the first major business travel suppliers to publicly discuss its second-quarter performance, insisted that the rebound in business travel demand not only was continuing but that they anticipated acceleration in the coming months.
The carrier recently surveyed its corporate clients and results showed “positive corporate expectations for business travel” in the third quarter, with several of the least recovered sectors “conveying strong optimism for increased travel this fall,” said Delta president Glen Hauenstein. The carrier’s business travel segment “continues to improve,” he said.
The mood is also positive among the Focus Travel Partnership's cohort of small and midsized TMCs. The organisation's chief executive, Abby Penston, says members are seeing all the signs of the usual autumn surge in business travel.