Small Business Optimism Hits Lowest Level Since 2013 Amid Labor and Inflation Concerns

The National Federation of Independent Business (NFIB) has reported this morning that its Small Business Optimism Index decreased for the 16th consecutive month, reaching its lowest point since January 2013.

Optimism is Very Low

The index fell 1.1 points in April to 89.0, which is significantly below the survey's 49-year historical average of 98. This decline reflects growing concerns among employers about lower productivity, higher inflation, and the challenge of paying higher wages for less qualified workers.

According to NFIB Chief Economist Bill Dunkelberg, “Optimism is not improving on Main Street as more owners struggle with finding qualified workers for their open positions. Inflation remains a top concern for small businesses but is showing signs of easing.”

Small Business Concerns

The top business problem cited by small business owners was labor quality (24%), closely followed by inflation (23%). With productivity falling as wages rise, this is a problem that squeezes small businesses from both sides of the labor ledger.

Key findings of the NFIB report include a decline in the frequency of positive profit trends (net negative 23%) and a deterioration in the net percent of owners expecting higher real sales (net negative 19%).

Additionally, the report revealed that a net negative 5% of owners viewed current inventory stocks as "too low," suggesting that inventory stocks are now too large relative to expected sales.

Labor Situation

Despite these challenges, owners' plans to fill open positions remain elevated, with a seasonally adjusted net 17% planning to create new jobs in the next three months. Furthermore, a net 40% reported raising compensation, with a net 21% planning to raise compensation in the near future.

Whether this trend remains resilient, however, is a key question. We believe that small businesses will suffer the brunt of tightening credit conditions and rising rates, leading to a more challenging environment.

Other Survey Details

Capital outlays have seen a slight decline, with 56% of owners reporting capital expenditures in the last six months, down one point from March. The percentage of owners planning capital outlays in the next few months also fell to a historically weak 19%.

Another area of concern is the impact of supply chain disruptions on small businesses. 18% of owners reported significant disruptions, while 31% experienced moderate impact, and 37% reported mild impact.

The report also noted a decrease in the net percent of owners raising average selling prices (net 33%, seasonally adjusted), which is the lowest level since March 2021. Price hikes were most frequently observed in construction, retail, wholesale, and finance sectors.

Closing Thoughts

The NFIB's Small Business Optimism Index highlights the ongoing challenges faced by small businesses in the United States. As employers grapple with labor quality, inflation, and productivity issues, it is likely that they continue to face a challenging business environment.

Given that credit conditions are tightening, rates are on the rise, and many small businesses are seeing slowing demand, it is likely that we begin to see less job openings and more layoffs in the months to come.