insures deposits up to $250,000, which is a relatively small amount for commercial accounts and leaves some deposits uninsured. The vast amount of uninsured deposits in the banking system raises the likelihood of bank runs in the future. This is bad not only for small businesses, but for the economy as a whole.... [+]Complicating the financial woes of small firms is the ever-rising cost of capital as the Fed raised its base lending rate another 25 bps up to a range of to 5% to 5.
Total nonfarm payroll employment rose by 253,000 in April, and the unemployment rate dipped slightly to 3.4%, according to thereleased by the Bureau of Labor Statistics on Friday, May 5, 2023. Meanwhile, the low unemployment rate keeps pressure on wage inflation, which grew 4.4% in April from a year earlier. Employment continued to trend upward in several industries, including professional and business services, health care, leisure and hospitality, and social assistance.
While it is good news that people are working, the tight labor market and resulting wage pressure hurts the bottom line for small businesses. Companies that need working capital to pay their bills are paying a higher cost of capital for it. This combination puts stress even on small businesses that are thriving.
There are some positive signs, however. Inflation slowed in April to its lowest annual percentage rate in two years. By comparison, the figure was 9.1% in June 2022. If the Fed halts its trend of raising its base interest rates, it will be a welcome relief. Importantly, if stability comes back to the midsize banking market, the latter half of 2023 could be a brighter than the beginning of the year.
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