Small business confidence wavers amid labor costs, inflation

The National Federation of Independent Business (NFIB) reported on November 14 that the confidence of small businesses in the U.S. is still declining. This represents two consecutive years of declining optimism, during which time inflation, interest rate hikes and a tight labor market have kept sentiment poor.

The small-business optimism index dropped from 90.8 in September to 90.7 in October. According to the NFIB, this drop is the index’s 22nd consecutive month below the 50-year average. December 2021 was the last time the index was at or below average.

As inflation remains a key concern for small business owners, 22% identified price rises as their primary concern. Meanwhile, 30% of SMB owners from industries such as financing, retail, construction, transportation, and wholesale notably said they are raising their selling prices. The NFIB’s monthly jobs report showed a seasonally adjusted net of 17% of owners intend to develop new jobs over the next three months.

Furthermore, a competitive labor market persisted in October, as reported by 23% of owners who named labor quality their top concern and 36% who stated they are raising pay scales. However, less than 25% of owners said they plan to expand compensation in the next three months, up one point from September.

However, the proportion of small firms reporting positive profit levels decreased by eight points from September to October. The reasons given by owners for the poor performance were reduced sales, increased input, and labor costs. Less than half, though, believe that things will get worse during the next six months.

NFIB chief economist Bill Dunkelberg said, “Small business owners aren’t growing their inventories as labor and energy costs refuse to decrease, resulting in a gloomy outlook for the rest of the year.”