As a banker of over 20 years, with a history of serving the Arizona market, I notice how often the commercial business perspective is left out of conversations on the economy, especially when it comes to business sentiments and opinion surveys. This October, my company, Wells Fargo, did something different. We released our first Quarterly Commercial Business Sentiment Report, providing data from 380 businesses across the country.
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While the Commercial Business Sentiment Report data alone is unique, I believe the greater value the report offers stems from being able to identify consensus across the commercial business community, particularly as it relates to inflation, interest rates, political concerns, as well as challenges and areas of opportunity, all of which are found in the report.
In a nutshell, here are the questions our survey asked and our respondents’ surprising responses.
How does the commercial business community feel about inflation?
According to the data, inflation continues to rank as a top concern for business leaders, both as a standalone issue and a political one. Companies are fearful of the increased cost of doing business, and have been left uncertain in their decision making, especially as it impacts purchasing and hiring power, managing capital, and committing to business investments.
In the short term, many companies have successfully passed costs on to consumers, but the balance between cost increase and reduced demand remains elusive. In Arizona, I have had multiple customers tell me that the ability to pass on costs has reduced post covid and although revenue is staying flat to slightly up, they are seeing margin compression.
- Takeaway: While inflation has increased rapidly in recent years, it should always be a concern, even if it’s not in a period of rapid escalation.
How are commercial businesses responding to interest rate fluctuations?
Death, taxes, and changing interest rates, could be the new three pillars of certainty.
After 14 consecutive rate hikes, and the long runway to the 50-basis point reduction in September, our commercial business community is feeling more hopeful. In fact, Sentiment Report data indicated that if rates continue to decrease over the next 12 months, 50% of respondents plan to focus on growth and expansion, while 30% of respondents are likely to seek additional financing. Since the time of the survey, we’ve heard from local clients that they expect the forecast for interest rate cuts to slow in 2025. Wells Fargo will release a Q4 2024 Sentiment Report in January 2025 with updated data.
Plans for growth and expansion could indicate hiring, increased innovation, or any other investment that could offer a ripple effect benefiting an industry or community.
- Takeaway: Before pivoting based on a single rate move, run multiple scenarios based on the growing number of variables.
Political concerns
The report doesn’t consider political preferences, but instead shares the top areas of concern relating to the election: health of the economy (71%), inflation (59%), and taxes (54%). Company leaders are concerned about how their businesses will fare when faced with unknowns.
In the business environment, few external events can cause complete economic overhaul like a presidential election. This is not to say that political events will cause disruption, rather that they could, and therefore cause uncertainty. For business worldwide, nothing stalls progress or decision making like uncertainty.
- Takeaway: Be ready for an extended period of post-election policy uncertainty; remain agile and alert.
What challenges and opportunities are commercial businesses experiencing?
With so many factors beyond their control during 2024—for example, U.S. strikes, geopolitical unrest, flooding—businesses have taken action in the best way they known how—by increasing their resiliency and leaning into what they can control. Over a third of companies indicated increased efficiency, over a quarter have grown their customer base, while more than a fifth have been able to negotiate pricing and launch a new product.
There is certainly reason to be cautious, and there are headwinds, but commercial businesses continue to succeed by initiating their own opportunities.
- Takeaway: Commercial businesses identify their own opportunities.
In conclusion
“Business as usual” now means expecting the unexpected.
Business as usual is no longer two dimensional. Company leaders are operating in a three-dimensional environment that requires constantly running and evaluating different scenarios, to ensure their business can adapt and adjust and remain viable.
Author: Megan Ackaert is Wells Fargo‘s Commercial Banking market leader serving Arizona. Megan and her team partner with public and privately held companies to provide financial solutions. She has worked with companies in various industries, including manufacturing, distribution, professional services, real estate, and healthcare. In addition, Megan and her team help companies manage their daily cash flow demands more efficiently. Contact her at Megan.Ackaert@wellsfargo.com.
