Inflation and labor quality remain top small business concerns
WASHINGTON, D.C. (July 11, 2023) – NFIB’s Small Business Optimism Index increased 1.6 points in June to 91.0, however, it is the 18th consecutive month below the 49-year average of 98. Inflation and labor quality are tied as the top small business concerns with 24% of owners reporting each as their single most important problem. The net percent of owners raising average selling prices decreased three points to a net 29% seasonally adjusted, still a very inflationary level but trending down. This is the lowest reading since March 2021.
“Halfway through the year, small business owners remain very pessimistic about future business conditions and their sales prospects,” said NFIB Chief Economist Bill Dunkelberg. “Inflation and labor shortages continue to be great challenges for small businesses. Owners are still raising selling prices at an inflationary level to try to pass on higher inventory, labor, and energy costs.”
Key findings include:
- Small business owners expecting better business conditions over the next six months improved 10 points from May to a net negative 40%, 21 percentage points better than last June’s reading of a net negative 61%.
- Forty-two percent of owners reported job openings that were hard to fill, down two points from May but remaining historically very high.
- The net percent of owners who expect real sales to be higher improved seven points from May to a net negative 14%.
As reported in NFIB’s monthly jobs report, 59% of owners reported hiring or trying to hire in June, down four points from May. Of those hiring or trying to hire, 92% reported few or no qualified applicants for the positions they were trying to fill.
Fifty-three percent of owners reported capital outlays in the last six months, down four points from May. Of those making expenditures, 37% reported spending on new equipment, 21% acquired vehicles, and 14% improved or expanded facilities. Eight percent spent money on new fixtures and furniture and 6% acquired new buildings or land for expansion. Twenty-five percent of owners plan capital outlays in the next few months. Overall, business investment is weak.
A net negative 10% of all owners (seasonally adjusted) reported higher nominal sales in the past three months, down two points from May. The net percent of owners expecting higher real sales volumes improved seven points to a net negative 14%. A very negative outlook for the second half.
The net percent of owners reporting inventory increases decreased one point to a net negative 3%. Not seasonally adjusted, 14% reported increases in stocks and 13% reported reductions. Fourteen percent of owners recently reported that supply chain disruptions still have a significant impact on their business. Another 28% reported a moderate impact and 42% reported a mild impact. A net negative 4% of owners viewed current inventory stocks as “too low” in June, down one point from May. A net negative 3% of owners plan inventory investment in the coming months, a weak number.
The net percent of owners raising average selling prices decreased three points from May to a net 29% seasonally adjusted, the lowest since March 2021. Unadjusted, 12% of owners reported lower average selling prices and 43% reported higher average prices. Price hikes were the most frequent in retail (52% higher, 10% lower), construction (49% higher, 4% lower), finance (48% higher, 3% lower), and wholesale (47% higher, 19% lower). Seasonally adjusted, a net 31% of owners plan price hikes.
Seasonally adjusted, a net 36% of owners reported raising compensation, down five points from May. A net 22% plan to raise compensation in the next three months. Eight percent cited labor costs as their top business problem, down two points from May and 24% said that labor quality was their top business problem.
The frequency of positive profit trends was a negative net 24%, up two points from May. Among owners reporting lower profits, 28% blamed weaker sales, 24% blamed the rise in the cost of materials, 13% cited the usual seasonal change, 10% cited labor costs, 8% cited lower prices, and 4% cited higher taxes or regulatory costs. For owners reporting higher profits, 50% credited sales volumes (where price increases show up), 23% cited usual seasonal change, and 11% cited labor costs.
Two percent of owners reported that all their borrowing needs were not satisfied. Twenty-seven percent of owners reported all credit needs met and 60% said they were not interested in a loan. A net 6% reported their last loan was harder to get than in previous attempts. Two percent of owners reported that financing was their top business problem, down two points from May. Credit remains available but the price is rising as the Federal Reserve raises its policy rate.
The NFIB Research Center has collected Small Business Economic Trends data with quarterly surveys since the fourth quarter of 1973 and monthly surveys since 1986. Survey respondents are randomly drawn from NFIB’s membership. The report is released on the second Tuesday of each month. This survey was conducted in June 2023.