The 2 inflation areas affecting small businesses: BofA exec.

According to Bank of America's latest data, small business optimism remains below pre-pandemic levels. Yahoo Finance's Wealth! welcomes Bank of America (BAC) President and Co-Head of Business Banking Raul Anaya to talk about some of the biggest costs small businesses in the US must contend with, including rent prices and wage inflation.

"We look at the inflow and outflow of payments within our small business accounts, which, by the way, we have over 3.5 million small business clients," Anaya tells Brad Smith. "And the inflow-to-outflow ratio — which is kind of a proxy to profits — was actually up in May, and it's the highest level since March of 2023. So that's a positive sign."

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This post was written by Luke Carberry Mogan.

Video Transcript

A new Bank of America survey reveals Small business optimism arose in May but remains below pre pandemic levels.

Small businesses make up 99.9% of American businesses, making them an important gauge of the US economy here to dig into the results, we have Raul Anaya, who is the Bank of America president and co head of business banking.

Raul.

Great to have you on with us.

I. I think very often we forget just how large a make up of the overall business environment small businesses are here.

And so the read in on the in the pulse of small businesses.

How would you describe it right now?

Well, first of all, thanks for having me.

Um, you know, when you think about small business, they continue to create a significant amount of jobs of the national economy.

And as our own data shows, um, optimism and small business did rise in in May.

But, like you said, it's still below pre pandemic levels.

Uh, the other positive thing about this is again using our own internal data.

We look at the the inflow and outflow of payments within within our small business accounts, which by the way, have over 3.5 million small business clients and the inflow outflow ratio, which is kind of a proxy.

The profits was actually up in May at its highest level since March of 2023.

So that's a positive sign, OK, And so all these things considered as you're looking across what small businesses are telling you at this juncture I mean, you're looking across the business, rent, inflation, even that, uh, exceeding that of households.

I mean, walk us into some of these data points here.

I mean, especially considering where small businesses are trying to offset the inputs of costs that they themselves are seeing, too, and having to account for yeah D. During our study, we focused on two of the larger components of costs for any business, particularly small businesses.

And that's rent and payroll rent.

Um continues to rise.

And as you mentioned, uh, rent inflation for small businesses ex exceeding rent, inflation for households.

Um, it's up it when you look at all the total amount of payments for small businesses.

Through May, it it represented about 9% of total payments.

That's significantly up compared to what it was pre pandemic levels when total rent was about 6% of payments.

So it continues to be a AAA large portion of their expense base and the amount of payments.

Uh, we did see some geographical differences.

Um, rent inflation for small businesses tend to be a little bit higher than the west west region of the United States versus perhaps the South and the Southeast.

OK, And you mentioned with regard to this is the other component of of how much they're paying in the payroll considerations, too.

Here.

I mean, where, where has wage inflation pressure continued to either persist or where have we seen it start to perhaps decelerate a little bit for small businesses?

Yeah.

Look, uh, wages continue to be a big component for for all businesses, particularly small businesses.

And there has been an easing of wage inflation.

And And when you think about all the job creation that has happened, um, over the last couple of quarters, that has actually eased the pressure on small businesses.

Um, it's still up year over year.

Um, and as you mentioned, it has decelerated over the last two years, and right now, through May it's up about 2.5%.

So that's a very manageable number, considering where where it has been.

Historically, you know, I I'd love to end this with some actionable tips.

Perhaps for for small businesses.

I mean thinking about the cadence that we typically hear from some of the large enterprises who are publicly traded.

And they give us their assessment of the macro environment for small businesses that are also wading through a very similar macro environment, perhaps not at the same but much of the same theme still holding true.

How can they best anticipate and and best position their businesses for an environment where they're weighing the same way that consumers are for rate cuts in some instances?

Or they're just hoping that there still continues to be resiliency on the end of the consumer.

Yeah, it's funny you mentioned that, um, we actually, a couple of months ago we came out with our business owner report, and about 65% of our small businesses that we surveyed expect revenues to increase.

So it's still very, very positive about the same where it was a year ago.

For mid size business owners, it's a different story.

Almost 90% of those mid size business owners expect revenues to increase over the next 12 months.

A couple of things.

There are some concerns with inflation, with interest rates the political environment.

But but most of these businesses continue to find ways to bring efficiencies to their operations and digitising their businesses, leveraging technology, leveraging digital is a key way of doing that.