Small business optimism increases slightly

Small business optimism is growing but continues to be stunted by recessionary fears and inflation, according to the National Federation of Independent Business. 

The NFIB Optimism Index increased a half-point in January to 90.3, its 13th straight month of being below its 49-year average of 98. Owners expecting better business conditions over the next six months improved by six points from December to a still-low net-negative 45 percent. 

“Historically, extreme negative readings like this have been followed by a recession,” the report said. “The Index of Small Business Optimism has been in recession territory all last year and into 2023. If it weren’t for the job openings and hiring plans components, the index would be much lower.” 

Inflation, though still a pressing issue, showed signs of easing. Twenty-six percent of owners said rising prices is the most pressing issue in operating their business, a decrease from December. The net percent of owners raising average selling prices fell by one point from December to a net 42 percent, its lowest mark since May 2021. 

Labor shortages remained a pressing issue for small businesses in January. Forty-five percent of owners reported having job openings that could not be filled, up four points from December. Fifty-seven percent reported hiring or trying to hire, but the vast majority found few or no quality applicants for open positions. 

 “The difficulty in filling open positions is particularly acute in the construction, transportation and manufacturing sectors,” the NFIB stated. “Openings are lowest in the agriculture and finance sectors.”  

To combat the tight labor market, a net 46 percent of small business owners reported raising compensation, up two points from December. Twenty-two percent expect to do so in the next three months, down five points from January. The frequency of positive profit trends reports was a net negative 26 percent as owners cited weaker sales, increases in the cost of materials and seasonal changes. A net 19 percent planned to create new jobs in the next three months, according to the NFIB, up 2 points from December and 13 points below its record high of 32 percent in August 2021.

Twenty-five percent said supply chain disruptions have had “a significant impact” on their business, with another 32 percent reporting “a moderate impact.”  Fifty-nine percent reported making capital outlays in the last six months, up 4 percent from December. Of those, 42 percent invested in new equipment, 24 percent bought vehicles, and 14 percent improved or expanded their facilities. Twenty-one percent plan to make capital outlays in the next few months. 

The NFIB predicted that the economy would likely not “grow much if at all” this year as more firms reported shedding jobs than adding positions last month. “The statisticians say we have many more jobs, but firms aren’t noticing it,” NFIB said. “They’re still looking for applicants.”