America’s small business owners have rarely felt worse. Ask them about the outlook for the next six months, and chances are you’ll be regaled with a long list of grievances.
The NFIB’s gauge of small business optimism dropped to 89.5 for June, data out Tuesday showed. That’s the lowest since January of 2013. The headline print missed the most pessimistic forecast from 19 economists.
It marked the sixth consecutive month below the 48-year average (figure below) and, notably, suggested firms are now more vexed than they were at the onset of the pandemic.
I doubt the existential sense of dread is comparable to that felt during the early days of COVID when, for a time, some wondered if the smallest American businesses might simply cease to exist. Government lifelines helped, though, and it’s important to remember that not every “small” business is a family-owned bar. (We should be so lucky.) Many of these firms are serious enterprises for whom the combination of soaring inflation and scarce labor is an existential problem all its own.
34% of owners said inflation was their single-most important problem last month. That was the highest since the fourth quarter of 1980. The net percentage of owners expecting real sales to be higher plummeted 13 points from May to a net negative 28%. The survey called the drop “severe,” and I’d contextualize it via various gauges of consumers’ real income expectations, which generally reflect pervasive gloom about inflation-adjusted pay. I’d also note that the net percentage of owners reporting higher nominal sales over the past three months flipped negative.
A net 69% of businesses reported raising selling prices, down slightly from May’s record high reading. Price increases were the most pervasive in retail and transportation. Half of businesses had open positions they couldn’t fill. A net 28% plan to raise compensation over the next three months, “very high,” as the survey put it. 94% of businesses hiring (or attempting to, anyway) said there were few, if any, qualified applicants.
Expectations have deteriorated every month in 2022. As the figure (below) shows, a gauge of forward-looking conditions plunged last month from already record-low levels to a new listless nadir.
It’s hard to see how that can get much worse, although it’s equally difficult to imagine it improving in the near-term given inflation realities and the difficulty small businesses have competing for scarce labor when wage costs are elevated.
That latter point is important. I say this every month. Since 2000, small businesses are generally credited with two-thirds of net new job creation in the US. They employ almost half of the country’s private sector workers, according to the SBA. Currently, they can’t find enough qualified workers to fill open positions. But it’s possible they couldn’t afford them even if they could find them. If small businesses can’t compete for workers in an environment of surging labor costs, corporate America will need to compensate for lost hiring once mom and pop are tapped out.
“As inflation continues to dominate business decisions, small business owners’ expectations for better business conditions have reached a new low,” NFIB Chief Economist Bill Dunkelberg sighed. “On top of the immediate challenges facing small business owners including inflation and worker shortages, the outlook for economic policy is not encouraging either as policy talks have shifted to tax increases and more regulations.”
