Small business optimism hampered by inflation

Small business optimism remained historically low in October as inflation continues to stunt owner expectations. 

The National Federation of Independent Business’ small business optimism index fell by less than a point to 91.3, the 10th straight month below the historical average of 98. 

One-third of owners said that inflation was their No. 1 problem in operating their business. That is three points higher than September numbers, but four points lower than July’s 43-year record-high reading. 

Owners expecting better business conditions over the next six months fell two points from September to a net-negative 46 percent. “Owners continue to show a dismal view about future sales growth and business conditions, but are still looking to hire new workers,” said NFIB Chief Economist Bill Dunkelberg. “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.”

Half of firms said they were raising prices. The net percentage of owners who expect real sales to be higher fell three points from September to a net negative 13 percent. Of the 10 index components, only two increased; seven of them declined.

Many small businesses continued reporting a shortage in employees and ongoing supply chain disruptions. Forty-six percent of owners reported job openings that were hard to fill. Of those hiring or trying to hire, the vast majority had few or no qualified applicants. An even 31 percent of owners said supply chain disruptions have had either a “significant” or “moderate” impact on their businesses.  

More than half of owners reported higher average selling prices. The net percentage of owners raising their average selling prices fell one point to a net 50 percent. A net 44 percent of owners raised compensation while a net 32 percent expect to do so in the next three months, a nine-point jump from September. 

More than half of owners had capital outlays in the last six months, down two months from September. Of those making expenditures, 37 percent reported spending on new equipment, 22 percent acquired vehicles, while slightly fewer improved or expanded their facilities. 

The frequency of reports of positive profit trends was listed at a net-negative 30 percent. Thirty-four percent who experienced lower profits cited the increase in the cost of materials, and 22 percent blamed weaker sales. Lower percentages cited labor costs, seasonal changes and higher taxes or regulatory expenses. For owners reporting higher profits, nearly half cited higher sales volumes while fewer said it was due to seasonal changes and higher prices. 

A net negative 8 percent of owners reported higher nominal sales in the past three months, a three-point drop from September. The net percentage of owners expecting higher real sales volumes fell three points to a net negative 13 percent. 

The report came as more than one-in-three small businesses say they were unable to fully pay their rent in October, according to a survey from Alignable, a Boston-based network of 7 million small business members. According to the report, nearly half of restaurants were unable to pay, while 37 percent of real estate agents said the same.