Small Business Optimism Index Decreases in March

The National Federation of Independent Business (NFIB) Small Business Optimism Index decreased in March by 2.4 points to 93.2, the third consecutive month below the 48-year average of 98. Thirty-one percent of owners reported that inflation was the single most important problem in their business, up five points from February and the highest reading since the first quarter of 1981. Inflation has now replaced “labor quality” as the number one problem.

“Inflation has impacted small businesses throughout the country and is now their most important business problem,” said NFIB chief economist Bill Dunkelberg. “With inflation, an ongoing staffing shortage, and supply chain disruptions, small business owners remain pessimistic about their future business conditions.”

Key findings include:

  • Owners expecting better business conditions over the next six months decreased 14 points to a net negative 49 percent, the lowest level recorded in the 48-year-old survey.
  • Forty-seven percent of owners reported job openings that could not be filled, a decrease of one point from February.
  • The net percent of owners raising average selling prices increased four points to a net 72 percent (seasonally adjusted), the highest reading in the survey’s history.

The net percent of owners raising average selling prices increased four points to a net 72 percent (seasonally adjusted), the highest reading recorded in the series. Unadjusted, three percent of owners reported lower average selling prices and 71 percent reported higher average prices.

Price hikes were the most frequent in wholesale (84 percent higher, 0 percent lower), construction (83 percent higher, 3 percent lower), agriculture (78 percent higher, 2 percent lower), and retail sales (77 percent higher, 2 percent lower). Seasonally adjusted, a net 50 percent of owners plan price hikes, up four points from February.

As reported in NFIB’s monthly jobs report, a net 20 percent of owners are planning to create new jobs in the next three months, up one point from February. The difficulty in filling open positions is particularly acute in the transportation, construction, and manufacturing sectors where many positions require skilled workers. Openings are lowest in the finance and agriculture sectors.

A net 49 percent (seasonally adjusted) reported raising compensation, down one point from January’s 48-year record high reading. A net 28 percent plan to raise compensation in the next three months, up two points from February. Eight percent of owners cited labor costs as their top business problem and 22 percent said that labor quality was their top business problem, now in second place following “inflation.”

Forty percent of owners report that supply chain disruptions have had a significant impact on their business, up three points. Another 28 percent report a moderate impact and 23 percent report a mild impact. Only 8 percent report no impact from recent supply chain disruptions.

The frequency of reports of positive profit trends was a net negative 17 percent. Among the owners reporting lower profits, 35 percent blamed the rise in the cost of materials, 23 percent blamed weaker sales, 14 percent cited the usual seasonal change, 13 percent cited labor costs, 7 percent cited lower prices, and 2 percent cited higher taxes or regulatory costs. For owners reporting higher profits, 55 percent credited sales volumes, 17 percent cited usual seasonal change, and 17 percent cited higher prices.

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