Small business optimism fell slightly in January, with inflation and labor quality remaining top-cited problems by owners
Inflation continues to impact Main Street and in NFIB’s monthly Small Business Economic Trends (SBET) report last week, the number of small business owners citing inflation as their most important business problem remained at its highest level since 1981. The January report also shows the number of small business owners increasing their average selling prices has reached its highest level since 1974. The monthly NFIB Small Business Optimism Index decreased slightly, from 98.9 points in December to 97.1 in January. Of the ten components that make up the index, seven metrics declined, one metric improved, and two remained unchanged.
“More small business owners started the New Year raising prices in an attempt to pass on higher inventory, supplies, and labor costs,” said NFIB Chief Economist Bill Dunkelberg. “In addition to inflation issues, owners are also raising compensation at record high rates to attract qualified employees to their open positions.”
Twenty-two percent of owners report that inflation was their single most important business problem in January, unchanged from December. Twenty-three percent cited labor quality as their top business problem, while 11% said labor costs.
In response to a federal Bureau of Labor Statistics report last week showing the U.S. inflation rate hit its highest level since 1982, NFIB Vice President of Federal Government Relations Kevin Kuhlman explained many small business owners’ concerns. “Small businesses across the country are feeling the impact of the highest inflation rate in 40 years. For most small business owners, this is a new and challenging environment that they have to navigate along with the ongoing labor shortage and supply chain disruptions. Today’s report is frightening news for Main Street as owners continue to make business adjustments to pass on the costs of higher inventory, supplies, and labor. Small businesses urge Congress to focus on solutions that would grow the economy and not further deter the small business recovery.”
January’s Small Business Economic Trends report showed owners remaining pessimistic with a net negative 33% expecting better business conditions over the next six months. This is a two-point increase from December but this indicator has declined by 13 points over the past six months. In addition, the hiring crisis continues with 47% of owners reporting job openings that could not be filled, a decrease of two points from December.
High numbers of owners continue to try and fill open positions, with a seasonally adjusted net 26% planning to create new jobs in the next three months. This is a two-point decrease from December, and six points below the August 2021 number which was the highest reading NFIB has recorded in 48 years of polling. To attract new employees, a net 27% plan to raise compensation in the next three months and a net 50% (seasonally adjusted) reported raising compensation, a 48-year record high.
Unchanged from December, 36% of owners report that supply chain disruptions have had a “severe” impact on their business. Another 54% report a “moderate” or “mild” impact, three points higher than last month. Following successful inventory investments in Q4 2021, the number of owners planning to accumulate inventory in the coming months fell from a net 8% in December to a net 3% in January.