Small business optimism fell for the first time in 2021, a minor decrease as small business owners are more uncertain about future business conditions
NFIB’s monthly Small Business Economic Trends report shows small business economic recovery remains strong. That said, serious issues like the unprecedented labor shortage, higher prices and widespread uncertainty are going to get worse before they get better.
The Optimism Index declined slightly, falling 0.2 points to 99.6 since April. Five of the ten Index components are historically high, and the Uncertainty Index decreased 1 point to 79.
Strong job growth continues, but owners continue to struggle to find workers to fill open positions. Unfilled job openings for small businesses are at a record-high 48%, the highest ever recorded and a steep increase from April’s number of 44%, which was a record-breaking number itself. February and March were also record-breaking months, meaning that small businesses are facing an unprecedented hiring crisis.
Sixty-one percent of owners report hiring or trying to hire in May, and of that number, 93% reported that they received few or no qualified applicants for the position. This is a 3% increase from April. This labor shortage continues to worsen with few signs of slowing, and is the biggest issue facing owners.
There is good news, however. Prior to the COVID-19 pandemic, we saw unprecedented levels of capital investment. After sinking during the pandemic, the number of owners reporting capital outlays has been steadily recovering. In the May survey, 59% report purchasing capital in the last six months, a 2-point increase from April. The most common expenditure was on new equipment (44%, a 2-point increase) followed by vehicles (24%, a 1-point decrease). Another 27% say they intend to purchase capital in the next few months, the same number as April.
While capital investment is vigorous, historically high numbers of owners are pessimistic about economic conditions in the second half of 2021. This means that capital investment will probably slow down as owners choose to take fewer risks by expanding their businesses.
Price inflation has become a serious concern as a net 40% of owners report raising their average prices in May, a four-point increase from April and the highest reading in forty years. The Federal Reserve wants to allow inflation rates to rise, at least temporarily, but this means that consumer dollars aren’t going as far as they usually do.
Owners must raise compensation to attract new workers and keep existing ones, an expense that is being passed down to consumers. We expect historically strong growth to continue as consumer spending increases, but uncertainty and pessimism remain serious concerns for owners and consumers alike.