Forget gazelles, the ongoing post-2008 threat to small and medium-sized businesses had amounted to an unnatural vise squeezing owners and operators in between their persistent inability to access credit and the lack of revenue growth (or even predictability). The biggest businesses thrived, borrowed freely, and then paid shareholders in the form of gross buybacks (a liquidity preference of their own). Underneath them, even lesser corporates, it was never so good therefore never real recovery for which inflation might have been possible.

Insanely spiraling commodity prices can be the start, but by themselves are not inflation. In fact, it was – and is – the situation described above which had previously thwarted the one becoming the other. An economic system fully greased by monetary excesses (nowadays credit being a huge money-like component) can lead to the bid in commodities then raising input costs for firms of all scales easily passed on to consumers (who, as workers, likewise demand increased wages).

If, however, material inputs get more expensive but companies can’t find credit and don’t see their revenues rising anywhere close to enough, they aren’t going to be bidding high for additional labor (instead overmanaging their whole cost structure) and sure won’t be able to pass along (and continue passing along) higher end prices to their customers whose bigger impact on business fortunes comes in the form of their absence. This is exactly what happened up to 2018-19.

I’ve never seen a three-faced vise, yet that’s what we’re describing here; can’t get credit, revenue stays down and then along comes a supply shock in commodities to make it all the more miserable for the commercial interests already run out of options. Inflation doesn’t follow; its opposite does, more readily appreciated once the commodity impact fades.

This is all the more the case given a situation when, as today, the government has previously provided the only other possible outlet (PPP) preventing the vise from more completely completing its duty. While last year’s huge “rescue” is coming to an end, and commodity prices are definitely on fire (because of sticky shortages), for small and medium businesses both are potentially huge trouble.

In the latest survey data from research firm Alignable, business owners express their big concerns about the end of PPP, even more those about “inflationary” prices if only because:

The ultimate indicator or recovery will be revenue levels returning to pre-COVID levels. Unfortunately, this month, we have seen that number swing in the wrong direction: presently 58% of businesses are generating 50% or less of their monthly pre-COVID revenue numbers. In addition, revenue per customer is lower across all groups reporting less than 125% of pre-COVID levels (so pretty much everyone).

So, the same business owners tell Alignable they’re seriously worried about rising input costs, wrongly referring to it as inflation, while actually demonstrating at the same time how it can’t or won’t be that. Merely rising input prices that won’t/can’t be passed any further along.

Net, net — consumer buying habits urgently need to shift back to Main Street retailers & restaurants or some businesses might not make it through the summer, especially since costs are elevating rapidly, revenues are low, cash on hand is dwindling, and finding reliable help is more challenging than ever.

This is the classic recipe for a supply shock combined with the same “L” shaped recovery as the last decade when we labored through all these same deficiencies (2009-19). At times, such as 2010-11, commodity prices rebounded sharply and went way up stoking inflation expectations and certainly the mainstream narrative for it (along with the imminent dollar crash) only to proceed headlong into a prolonged (nine years and counting) stretch without sustained, broad-based general acceleration in all consumer prices.

A significant chunk of where underlying growth should come from, this is not where you’d expect to find trough-levels of revenue, low cash, no credit, and now the PPP lifeline reached into its final weeks.

The higher copper and iron go, gasoline, too, the worse it will be right where inflation needs everything to flow rather than throw a huge, destructive wrench into it.

Ironically, it has been spending numbers which have obscured this very different background. On goods, consumption is (temporarily) way, way up – to the benefit of only a narrow subset (including overseas manufacturers, largely big companies, too). Services, not nearly so much, in fact still depressed (as shown above).

As are so many other related components, including consumer credit which for many small businesses is their company’s credit.

According to the Federal Reserve, consumer credit levels rose in March primarily as the government continues to do what the government has done in this segment since taking over student loans in the aftermath of that last time. The non-economic influence tells us nothing about the real economics in lending.

Outside the feds, consumer credit was lower in March 2021 than it had been in March 2020 – during the initial contraction. Even with that base effect, lending still managed a small minus.

That’s unusual outside of only the most severe recessions. As the big black arrows above point out, during the mild contractions in 1990-91 and the dot-coms of 2001, consumer credit was mostly flat during the first and then pretty robust during the other. The Great “Recession”, by contrast, was the first time there’d be huge and sustained declines.

Last year and this year hasn’t been that severe, still declining nevertheless.

A big chunk of it was due to consumers paying down revolving balances (credit cards). Beginning February 2021 and repeated in March, those have started to come back up if more slowly. Like most of the labor market numbers, it’s clear there’s beginning to be some improvement in behavior.

However, overall, it hasn’t been the same from credit suppliers; particularly depository institutions which are supposed to have been filled to the brim with both bank reserves and the confidence everyone says those inspire. On the contrary, it has been banks (and credit unions who don’t obtain the same bank reserves benefits) which avoided lending in consumer (as well as other) lines.

As their customers paid down revolving, these banks did not chase non-revolving borrowers to make up for the lost profit opportunities as theories about portfolio rebalancing have said (though thoroughly disproved by practical experience).

The economy is rebounding and doing so in more definite ways than it had been last year, but will it be enough or in time? That has been our problem from the cycle’s very start.

According to a whole range of data, including the survey results noted above, there remain substantial doubts standing right in the way of any inflationary potential. Like last time, this time the same exact impediments which thwart commodity pressures from becoming anything more than yet another negative factor on especially credit- and revenue-constrained small and medium businesses who would further develop those pressures into inflation if they had any chance.

In short, they ain’t got the money for any of it.