New data from the Bank of America Institute reveals that small businesses are continuing to grapple with cost pressures, with rent inflation being a significant challenge. According to the report, the average monthly share of rent in total payments has risen to 9.1% through May, a notable increase from the 2019 average of 5.9%. This surge in rent costs is particularly burdensome for small businesses across the country.
Regions like Las Vegas are experiencing even higher rent burdens, with the average share of rent in May surpassing the national average by more than double. However, there is a silver lining in the form of easing wage inflation, which has alleviated some of the pressure on small businesses. The Bank of America Institute highlights that total nonfarm payroll growth is strongest in the South, with cities like Charlotte and Tampa seeing payroll payments over 30% higher than in 2019.
The analysis conducted by Bank of America to calculate rent share focused on internal data from small businesses that make rent payments through their Bank of America accounts. The data shows that the average monthly rent payment growth per small business client increased by 12% year-over-year in May. This growth closely mirrors the nonresidential real estate rents component of the Producer Price Index, indicating that the increases are primarily driven by inflation rather than businesses upgrading to larger spaces.
Despite the challenges posed by rising costs, there are positive indicators for small businesses. The inflow-to-outflow ratio, considered a proxy for profits by the Bank of America Institute, rose in May to its highest level since March 2023. However, the ratio still remains lower on average compared to previous years, suggesting that small businesses are navigating a complex economic landscape.
