US Small Business Outlook Hits Another 48-Year Record Low

Small business “optimism” looked suspiciously like pessimism in May, the latest NFIB survey, released on Tuesday, showed.

Once again, a gauge of future business conditions hit a new record low, underscoring a palpable sense of angst among small firms, which, in aggregate, account for around half of US private sector employment. The last ADP report suggested firms with 1-49 employees continued to shed jobs in May.

Owners expecting better business conditions over the next six months dropped four points in the NFIB poll, reaching a net negative 54% (figure below).

That’s the lowest level in the survey’s 48-year history. Expectations have deteriorated every month this year, in lockstep with surging inflation and ongoing friction in the labor market, where small firms struggle to compete for scarce workers as wage bills soar.

A net 72% of owners reported raising selling prices, matching a record from March, and up a truly dramatic 32 points from a year ago.

More than half of owners said they had job openings they couldn’t fill, compensation plans remained elevated and just 8% of owners reported no supply chain problems. Just 3% reported lower average selling prices. Just 6% think it’s a good time to expand. And on and on.

The headline gauge dropped to 93.1 (figure below), essentially in line with consensus. The range of estimates, from 18 economists, was 89 to 95.

The index has printed below the 48-year average for five consecutive months.

The accompanying color from NFIB Chief Economist Bill Dunkelberg was familiar. “Inflation continues to outpace compensation which has reduced real incomes across the nation,” he said, in a press release, adding that “small business owners remain very pessimistic about the second half of the year as supply chain disruptions, inflation and the labor shortage are not easing.”

Read that last sentence again. Supply chain disruptions, inflation and the labor shortage are not easing.

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