Small business optimism fell again in March as owners expressed growing alarm over inflation. The Index of Small Business Optimism, the output of a quarterly survey of economic indicators tabulated by the National Federation of Independent Businesses, decreased to 93.2, the third consecutive month that the reading has fallen below the survey’s 48-year average of 98.
Nearly one-third of owners said inflation was the No. 1 business problem they faced, a five-point increase from February and the highest reading in 41 years. After raising interest rates by 25 basis points last month, the Federal Reserve Open Market Committee will likely continue interest rate hikes to slow inflation.
“Government spending will also slow,” the NFIB stated. “Unemployment will rise, uncomfortable for politicians and also the Federal Reserve which has ‘full employment’ as one of its two policy goals. Small business owners see all this coming. Their expectations for sales growth and business conditions later this year are in the tank. In the meantime, there are still opportunities to make a buck, if supply problems can be overcome.”
Other confidence indicators also fell in March: Owners expecting better business conditions over the next six months dropped 14 points to the lowest level in the history of the survey. The net percentage of owners raising average selling prices rose four points to 72 percent, also a record high, surpassing the 67 percent experienced in the fourth quarter of 1974. Forty percent of owners reported that supply chain disruptions “had a significant impact on their business,” while another 28 percent said there had been a moderate impact. Twenty-three percent said supply chain issues had a mild impact.
The persisting labor shortage continues to impact businesses: Forty-seven percent reported not being able to fill job openings in the current period, more than double the historical average of 23 percent. More than nine-in-10 owners who were trying to hire reported “few or no qualified applicants for the positions they were trying to fill,” according to NFIB. “The difficulty in filling open positions is particularly acute in the transportation, construction and manufacturing sectors where many positions require skilled workers,” the NFIB stated. “Openings are lowest in the finance and agriculture sectors.”
The NFIB has collected data on small businesses since 1973. Data is collected through monthly surveys of its membership. March data was a compilation of 560 individual responses, or 11.3 percent of a membership sampling of 5,000.