For America’s Small Businesses, ‘Rough Times Ahead’

For the tenth straight month, US small business optimism loitered below the half-century average.

I have to remind myself to cover these surveys. They don’t grab a lot of headlines, but lest we should forget amid the constant hand-wringing over who does or doesn’t still work at Twitter and who Mark Zuckerberg might or might not fire this week, small businesses comprise 47% of private sector employees and accounted for 62% of net new job creation since 1995, according to the government.

As we learned in April of 2020, when America’s small businesses nearly went extinct, the economy can’t function without them, and if they’re all collectively pushed to the brink at the same time by some exogenous shock, they have to be bailed out. And they were. Don’t say Steve Mnuchin never did anything for you. (That’s supposed to be funny, Democrats. Don’t let the election tension rob you of your sense of humor.)

At 91.3, the NFIB’s small firm mood ring suggested optimism waned for the first time in four months in October, but really, it’s just been one, long bout of depression in 2022 (figure below).

NFIB Chief Economist Bill Dunkelberg described owners’ views on future revenue growth and business conditions as “dismal.”

On the bright side, given how crucial small businesses are for job creation, they’re “still looking to hire new workers,” Dunkelberg remarked. A net 20% plan to increase employment, down from the prior month, nowhere near the nosebleed peaks above 30% and roughly in line with pre-pandemic levels, albeit much higher than the 10-year, pre-pandemic average.

Owners still reported problems finding qualified workers and filling open positions, underscoring persistent labor market distortions. The share with at least one unfilled opening remained at extraordinarily elevated levels, though off the highs (figure below). Of those businesses trying to hire, nine out of 10 said there were few or no qualified applicants for the positions they were trying to fill.

The net share of firms raising prices fell a fifth month, to 50%, a 13-month low, but those planning to raises prices over the next three months moved higher for the first time since spring. A net 32% expect to increase compensation over the next three months. That’s the highest since October 2021, and points to ongoing wage pressure.

Inflation remained the bane of firms’ existence, with a third of owners citing runaway price growth as the single-most important problem in operation their business. That was up from September, and down a few points from July, which marked a 43-year high.

“Inflation, supply chain disruptions and labor shortages continue to limit the ability of many small businesses to meet the demand for their products and services,” Dunkelberg went on to say. The forward-looking business conditions gauge slipped to a net negative 46%. That’s abysmal, although better than the rock-bottom levels seen earlier this year.

The commentary section contained a morbidly amusing bit about fiscal and monetary policy, and the implications of Fed “success” for small firms. “While the Administration keeps pushing for more spending (inflationary) the Fed will persist in doing its best to slow spending (hopefully avoiding a real recession),” the report read. “Success for the Fed is bad news for small businesses, sales will fall, costs will be sticky, so profits will take a hit. Rough times ahead.”