“Overall, small business owners are not optimistic about 2023,” Bill Dunkelberg sighed on Tuesday morning in the US.
Dunkelberg is, of course, chief economist at the NFIB. The group’s closely-watched small business optimism index deteriorated in December. In fact, at 89.8, the gauge came in below every estimate from 20 certified clairvoyants.
December’s print was the lowest since June, and marked the 12th straight month below the half-century average for the index.
A measure of expectations dropped sharply in December to a net negative 51%. That measure — owners expecting better business conditions over the next six months — hit a record low in 2022.
The NFIB reports aren’t the stuff flashy headlines are made of, and it’s pretty rare they grab space above the digital fold. That’s tragically ironic. America worships its mighty multinationals with a reverence typically reserved for divinities, even as many of those companies are more than willing to sell out the middle-class for a few basis points of margin. In reality, America runs on small businesses, not giant corporates.
Inflation remained the most important issue for owners, a third of whom said it was their most vexing problem in December. Notably, the net percent of owners raising average selling prices fell to the lowest level since May of 2021, even as it remained “historically high” at 43%. The net percent planning price hikes dropped 10 points from November.
Businesses are still finding it very difficult to fill open positions, underscoring persistent friction in the labor market and, likely, small firms’ struggles competing with big, deep-pocketed corporate heavyweights for scarce workers demanding higher pay. 41% of owners reported job openings that were hard to fill, down slightly from November but extremely elevated nevertheless.
As Dunkelberg noted, “55% of owners reported hiring or trying to hire in December [and] 93% of those hiring or trying to hire reported few or no qualified applicants for the positions they were trying to fill.”
I would note that if the latest ADP report is any indication, smaller firms kept hiring workers last month even as larger firms pulled back.
The y-axis in the visual is trimmed. The apocalyptic plunge in small firms’ payrolls that occurred in April of 2020 was so large that if you show it, other months are barely perceptible.
That’s a good excuse to remind readers that 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 small businesses nearly went extinct, the economy can’t function without them. If they’re all pushed to the brink at the same time by an exogenous shock, they have to be bailed out. Individually, they’re too small to matter, or at least for the financial media. Collectively, they’re too big to fail.
Anecdotally, my two nephews are electrical engineers in Silicon Valley. They have told me the large SV employers of engineers are cutting en masse – above the levels being reported in the news. This should result in a pool of engineers available for jobs at smaller companies.
If the USA would provide free English language classes to incoming immigrants, that would help.
Leading up to this economic downcycle, Microsoft cut a lot of consultants from the payroll, including me. I was peeved, but found another consulting role in Texas. I’m in the process of hiring in a permanent role with an international. Silicon Valley companies don’t deserve any sympathy. They’re doing just fine.
I believe the US government does support English language classes at some level. They do just about everything. I agree classes should be provided. Only Silicon Valley should also provide English language classes as a way of integrating immigrant staff. Why the hell not? It would help them disavow their image as self-centered, money-hungry geeks.
I spent nearly 35 years in the metro area that served as the home of a large engineering center for Deere & Co. During those years many hundreds of those engineers were laid off. They didn’t go away, however. Many were absorbed by three large local temp agencies that specialized in providing engineers, when needed, to Deere and others. Tech(nical) firms are laying off these folks but my suspicion is that behavior is simply a process of converting these costly workers into less expensive and more flexible independent contractors.
Would love and appreciate seeing further geographical breakdown of the data …
Thanks for enlightening me. I didn’t know that small businesses provide 47% of private sector jobs. I thought it was more like 25%. If large corporations are laying people off and the smaller corporations are picking them up this could help with the inflation problem. I was consulting during the pandemic with bigger companies and was making 35% more than before the pandemic. I took a full time position with a medium sized company with an expected 25% cut in pay. But I was getting calls from recruiters offering positions at small companies for a 50% cut in pay.
Thank you for speaking my language! (I’m one of your resident small-business-owner readers) For the past year, I’ve only raised prices as the wholesale moved up. But having expanded to a second (wine & spirits) store, during a time that construction costs were about 75% above expectations, and now payroll is expanding yet again, not to mention plenty of other costs rising…….. I’m about to embark on nearly across the board price increases. I’ve been squeezed long enough this year.
I’ll be interested to see if some of the wholesale price increases of the past year come back down. There have been literally 2 or 3 items that were a little less in the past week, and I was surprised to see it. I expect most of it to stick, though.