Small-Business Sentiment Remains Low as Firms Struggle With Inflation

Small-Business Sentiment Remains Low as Firms Struggle With Inflation
People shop for produce at a store in Rosemead, Calif., on June 28, 2022. (Frederic J. Brown/AFP via Getty Images)
Naveen Athrappully

The National Federation of Independent Business’ (NFIB) Small Business Optimism Index increased in July, but remained below its 48-year average, indicating the struggle facing the sector.

The July index came in at 89.9, up 0.4 points. But it was the sixth consecutive month that the index was below its 48-year average of 98, an Aug. 9 press release states.Thirty-seven percent of owners cited inflation as the single most important problem in operating their business. This is a three-point increase from June and the highest level since the fourth quarter of 1979.

“The uncertainty in the small-business sector is climbing again as owners continue to manage historic inflation, labor shortages, and supply chain disruptions,” Bill Dunkelberg, NFIB’s chief economist, said in the release.

“As we move into the second half of 2022, owners will continue to manage their businesses into a very uncertain future.”

The Producers Price Index (PPI), a measure of inflation at the wholesale level, rose by 11.3 percent in the 12-month period ended June 2022, data from the U.S. Bureau of Labor Statistics (BLS) shows.

During this period, PPI for goods surged by 17.9 percent, the largest 12-month advance since November 2010. PPI for services rose by 7.7 percent, and for construction by 19.2 percent.

A net 37 percent of owners plan on raising prices of their products. The net percent of owners raising average prices declined by seven points, to 56 percent, in July on a seasonally adjusted basis.

Despite the fall, this is still expected to have an inflationary effect. Owners expecting real sales to be higher fell by one point, to a net negative 29 percent.

Only 52 percent of owners are expecting better business conditions over the next six months. Although the measure went up in July, it has fallen every single month from January to June.

Labor Worries

After inflation, labor was cited as the top business problem, with 21 percent of owners seeing it as an issue. Nine percent of owners saw labor costs as a significant issue. Of the total respondents, a net 48 percent raised compensation and a net 25 percent plan on raising compensation in the coming three months.
A June survey of more than 1,500 members of Goldman Sachs’ 10,000 Small Businesses program revealed that 93 percent of owners were worried about the U.S. economy slipping into a recession.

More than 40 percent believed that hiring had become worse during the previous three months, with 87 percent finding it difficult to recruit qualified candidates.

The difficulty in finding the right employees is occurring as the number of jobs in the country keeps declining. In June, for example, the number of job openings fell by 605,000, to 10.5 million, with the rate of job openings falling, from 6.9 to 6.6 percent.

This was the third consecutive decrease in job openings and the biggest fall since April 2020, according to data from the BLS.