Inflation Continues Impact on Small Businesses

The National Federation of Independent Business (NFIB) Small Business Optimism Index decreased slightly in January to 97.1, down 1.8 points from December. Inflation remains a problem for small businesses as 22 percent of owners reported that inflation was their single most important business problem, unchanged from December when it reached the highest level since 1981. The net percent of owners raising average selling prices increased four points to a net 61 percent (seasonally adjusted), the highest reading since the fourth quarter of 1974.

“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.”

Key findings include:

  • Owners expecting better business conditions over the next six months increased two points to a net negative 33 percent. Small business owners remain pessimistic about future economic conditions as this indicator has declined 13 points over the past six months.
  • Forty-seven percent of owners reported job openings that could not be filled, a decrease of two points from December.
  • Inventory accumulation plans fell five percentage points.

As reported in NFIB’s monthly jobs report, a net 50 percent (seasonally adjusted) reported raising compensation, a 48-year record high reading. A net 27 percent plan to raise compensation in the next three months. Eleven percent of owners cited labor costs as their top business problem and 23 percent said that labor quality was their top business problem.

Owners’ plans to fill open positions remain at record high levels, with a seasonally adjusted net 26 percent planning to create new jobs in the next three months, down two points from December and just six points below the highest reading in the 48-year history of the survey set in August.

Seasonally adjusted, 2 percent of all owners reported higher nominal sales in the past three months. The net percent of owners expecting higher real sales volumes decreased by six points to a net negative 3 percent.

Thirty-six percent of owners report that supply chain disruptions have had a significant impact on their business. Another 32 percent report a moderate impact and 22 percent report a mild impact. Only 9 percent report no impact from recent supply chain disruptions.

The net percent of owners raising average selling prices increased four points to a net 61 percent (seasonally adjusted), the highest reading since the fourth quarter of 1974. Price raising activity over the past 12 months has continued to escalate, reaching levels not seen since the early 1980s.

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