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Inflation is cooling, but small businesses in the U.S. say customers just aren’t spending

Sarah Cash

Sarah Cash opened her store, The 12th House, in Grand Rapids, MI, in 2021.


Kevin Meehan has owned his Los Angeles-based restaurant, Kali, for more than 8 years ­— but lately, he said it feels like he’s had to “roll with the punches harder than ever.”

Meehan, who is also the chef at Kali, said the December holiday season was unexpectedly slower than it had been in recent years, followed by a “really weird January,” with alcohol sales seemingly hurt by the growing “Dry January” sobriety trend.

He said that making payroll and paying all the bills from December was a challenge. “That’s a lot of big checks we had to write,” Meehan said.

While cooling inflation and a robust GDP reading that smashed economists’ expectations are reasons to be optimistic about the US economy, one key economic engine seems to still be sputtering: small businesses.

Small business owners say they’re still grappling with the hangover effects of inflation and a labor shortage, according to the National Federation of Independent Business’s most recent monthly survey, which was conducted in January. And some are pointing to a weakening consumer as a newer reason to feel less optimistic.

This confluence of factors has left some business owners scrambling to adapt. Meehan’s restaurant has a Michelin star, but he said even that elite status and recognition hasn’t helped him feel fully secure.


Kevin Meehan

“You’d think that being an 8-year-old business with such great clientele that are loyal, we’d be a shoo-in for having a permanent residence, but that’s not the case at all,” Meehan said. “Every month I look at our cost of goods between labor and food and liquor. Everything’s gone up and we haven’t really adjusted.”

Recent national data has hinted to the beginning of a pullback in spending by Americans. US retail sales fell 0.8% in January, well below economists’ expectations of a 0.1% decline, according to FactSet.

“It does seem as though businesses are having a more challenging time passing down higher costs to the consumer,” said Charles Dougherty, a senior economist at Wells Fargo. “Small businesses actually make up the vast majority of business establishments in the United States economy, so they are at the forefront of what’s happening in terms of economic activity.”

Indeed, small businesses drive almost half of US economic activity, according to the US Chamber of Commerce.

Starting your own business is often considered part of the American Dream; many entrepreneurs are fueled by passion despite the harsh economic realities of the past few years.

Sarah Cash started The 12th House, a gift shop selling locally handmade goods in Grand Rapids, Michigan, in 2021, in honor of their late father, who worked as a metalsmith and made jewelry.

Cash said they invested every dollar they made back into their business in the first two years. Everything seemed to be on an upward trajectory, but then something changed.

“The last eight of nine months have been just terrible,” they said. “People have stopped spending money on things that aren’t necessary, and gift shops aren’t really necessary.”

Elise Kutt/Mod Bettie Portraits

Sarah Cash

“I’ve noticed people are spending less per transaction compared to when I first opened,” Cash said.

Over the past few years, Americans have experienced some of the steepest price hikes in decades. The Consumer Price Index, a measure of prices paid by consumers, peaked at 9.1% in June 2022, and since then, it’s been steadily falling.

In January, price hikes eased further than expected, rising by just 3.1% ­— closer to the Federal Reserve’s 2% inflation target.

But even as inflation tapers, Cash, who is throwing a fundraiser to raise money for their business in April, said they’re still fighting to survive.

“If this fundraiser doesn’t go well then I probably will not be in business come May,” they said.

Dougherty said small businesses may be delayed in feeling the effect of easing inflation, but once businesses experience more prolonged stable prices, that may help their sentiment turn around.

A recent survey of American Express small business customers indicated that some small business owners see strength in 2024. Half of the 557 US small businesses surveyed said they plan to grow or expand their businesses in the upcoming year.

Meehan said he’s hopeful for a turnaround this year. Despite a slow January, Valentine’s Day week was “gangbusters.”

“I don’t have a choice but to be optimistic. I just need to fight harder,” he said. “All the money we make, I’m just going to put it right back into the cookie jar.”

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