Rising Prices on Main Street Erode Small Business Optimism 

A decline in optimism among small business owners is evident as the NFIB’s Small Business Optimism Index dropped to 91.3 in August, reflecting 20 consecutive months below its 49-year average of 98.

Inflation remains a significant concern, with 23% of small business proprietors naming it their primary business hurdle, an uptick from last month. Meanwhile, average selling prices are also increasing, suggesting continued inflationary pressures.

Bill Dunkelberg, NFIB Chief Economist, commented, “With small business owners’ views about future sales growth and business conditions discouraging, owners want to hire and make money now from strong consumer spending. Inflation and the worker shortage continue to be the biggest obstacles for Main Street.”

Highlights from the report include:

• Expectations for better business conditions over the next six months plummeted by seven points, currently standing at a net negative of 37%.
• The demand for jobs remains robust, with 40% of owners encountering difficulties filling positions. Furthermore, 17% plan on creating new jobs in the imminent quarter.
• Capital expenditure reports rose slightly from July, with 56% of businesses making such outlays in the past half-year. However, plans for future capital investments have decreased.
• Sales, in nominal terms, were reported higher by a net negative 14% of owners, the lowest since August 2020. Meanwhile, expectations for future real sales volume have declined by two points.
• Inventory reports display a declining trend with a net negative 7% reporting inventory gains, and the outlook for inventory investment remains unchanged from July.
• Despite the challenges, businesses are responding with pricing adjustments. A net 27% of owners have increased their selling prices, and 30% have plans for price hikes in the near future.
• Labor remains a pivotal discussion point. 36% of the surveyed businesses increased compensation, and 26% have plans to do so in the upcoming quarter. Yet, labor quality and costs remain significant concerns.
• Profit trends show a slight improvement, with a net negative 25% reporting positive profit trends. Among those with lower profits, multiple factors such as weaker sales, rising material costs, and labor costs, were cited.
• Borrowing dynamics remain stable, with only 2% of business owners stating unmet borrowing needs. Conversely, 27% had all their credit requirements fulfilled.

Established in the last quarter of 1973, the NFIB Research Center has been tracking Small Business Economic Trends through surveys. This specific survey, conducted in August 2023, provides a comprehensive insight into the challenges and opportunities that small businesses are currently facing.

Follow us for more Small Business News:

Image: Envato Elements