Small Business Economy Troubled by Labor Quality and Inflation

Date: May 17, 2023

Small business optimism remains below 49-year average for 16th consecutive month

NFIB’s April 2023 Small Business Economic Trends Report noted that labor quality has surpassed inflation as the most-cited business problem at 24%, with inflation in second place at 23%. Nine percent of small business owners cited labor costs as their top business problem. 

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

NFIB’s monthly Jobs report shows that small businesses continued to struggle to increase their workforce in April, with 45% (seasonally adjusted) of all owners reporting job openings they could not fill in the current period. Meanwhile, the monthly Small Business Economic Trends (SBET) report saw the NFIB Small Business Optimism Index decline 1.1 points to 89.0, the 16th consecutive month below the 49-year average of 98. 

The Jobs report also noted that employers continue to raise compensation to entice new employees, with a net 40% (seasonally adjusted) reporting raising compensation. Additionally, a net 21% plan to raise compensation in the next three months.  

The frequency of reports of positive profit trends was a net negative 23%, five points worse than in March. The most commonly cited cause of lower profits was weaker sales, followed by the rising cost of materials and then seasonal changes. 

A net negative 5% of small business owners viewed current inventory stocks as “too low” in April, a six-point decrease from March. These shortages were most frequent in manufacturing, followed by agriculture, retail, and wholesale. A net negative 9% of all owners reported higher nominal sales in the past three months, a 3-point decrease from March.  

Sixty percent of small business owners report hiring or trying to hire in April. Ninety-two percent reported few or no qualified applicants for the positions they were trying to fill.  

The net percentage of owners raising average selling prices decreased four points to a net 33% (seasonally adjusted), the lowest figure in over two years. Price hikes were most common in the construction industry, followed by retail, wholesale, and then finance.  

You can read the full monthly Small Business Economic Trends report here andread the full monthly Jobs report here. 

Take Action: Congress is considering a new 5% tax on small businesses, with proponents arguing that it closes a “tax loophole.” Let Congress know that your small business is not a loophole, and that now is not the time to pass new taxes on small businesses, by writing a personalized letter to your legislators. 

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