Some small businesses are struggling in this “stabilizing” economy – Marketplace

In a lot of ways, the economy right now seems like it’s headed in the right direction. Inflation looks like it’s probably under control, the Federal Reserve is cutting interest rates, and the extremely tight labor market of the last few years is finally loosening up.

But even if the economy is on the right path, it’s still dealing with problems that emerged over the last few years: skilled labor shortages, supply chain issues, high costs thanks to inflation, and shrinking profit margins.

As a result, many business owners say that right now, the economy feels a little off-kilter.

Like a lot of restaurant owners, Matt Hetrick has had trouble filling positions at his two locations near Annapolis, Maryland. He said over the last few years, even after raising wages, he’s had to get creative: running shifts with fewer managers, and cutting down on prep work.

“Just something as simple as a french fry,” Hetrick said. “There’s a lot of places that will cut their own french fries, that will fry them several times, do the whole thing. And then there’s also the ability to buy frozen fries out of a bag.”

That might not over well in Belgium, but it requires a lot less labor. Hetrick said making adjustments like these is part of the job. But what’s difficult, he said, is that many of the challenges that he’s had to adjust to have subsided a bit, but they haven’t gone away. 

“You have inflation, you have worker shortages, you have access to capital shortages,” Hetrick said. “It doesn’t seem to be ending, and getting back to a place where it’s a reasonable set of challenges.”

Hetrick said all that adapting can be exhausting. He said it’s not like he’s correcting a tactical error he made, like opening up a business in the wrong location or designing the wrong menu. Instead, the challenges he’s dealing with are economic headwinds, just like big companies talk about in their quarterly reports, and which he, as a business owner, has no control over.

“You can’t control how many workers there are in the United States, and where they are, and what wages they’ll take,” Hetrick said. “And so it feels broken, because you’re adjusting to things that you weren’t doing wrong.”

Supply chain issues have been sticking around, too.

“We’re starting to see the effects of all the things that have been going on in the Red Sea, the attacks and the container delays,” said Cathrine Reynolds, who handles imports for Palmetto Tile Distributors in South Carolina. “I feel like it’s finally starting to catch up with the industry overall.”

Then, there was Hurricane Helene, and the International Longshoremen’s Association port strike. Reynolds said every supply chain delay pushes up her costs, because shipping companies add fees and surcharges for labor and fuel.

“It just seems we go from one kind of disaster to the next that’s just sustaining these price levels, unfortunately,” Reynolds said.

Another challenge, she said, is that demand for tile among her homebuilder clients has been fairly sluggish.

Reynolds said that could be because of the hurricane, or because people are nervous about the election. But a big factor holding her customers back, she said, is the cost of building supplies and construction loans. 

“As rates haven’t come down like they thought they would, and basic supplies to build a house, like wood and plumbing and pipes, all of that has stayed higher, [customers have] had to scale back their tile budget considerably,” Reynolds said.

That means most businesses don’t have much leverage to jack up their prices. Last week, a Federal Reserve survey found that businesses in a number of Fed districts said input costs, which can include labor, supplies, and shipping surcharges, are rising faster than businesses can raise retail prices.

“You can’t realistically raise a price if you’re going to be competing with several hundred other retailers selling the same exact thing at a lower price,” said Jeff Cayley, owner of Worldwide Cyclery, a mountain bike store in Newbury Park, California.

Cayley said given the limits on his ability to raise prices, rising expenses are taking a toll.

“That’s just making our business a lot harder to be profitable, and a lot harder to operate and run profitably than it used to be, just five years ago,” Cayley said. 

So, Cayley’s been cutting back. He said he’s spending less on packaging material and other shipping costs, along with air conditioning and heating. He also let go of about 10% of his staff. 

The net result, he said, isn’t great for anybody.

“I feel as if we’re not offering as good of value to our customers and to our staff as we were in 2019, and that’s a result of just having to cut corners and pinch pennies everywhere we can, in order to keep hanging on,” he said.

Cayley said Worldwide Cyclery is still doing alright. But doing business right now is just harder than it was before the pandemic.