Small business owners remain relatively pessimistic about business conditions as decades-high inflation readings continue and the labor market remains tight, according to May’s Index of Small Business Optimism from the National Federation of Independent Business.
The index decreased to 93.1, the fifth straight month below its 48-year average of 98. The number of owners expecting better business conditions over the next six months fell four points to a record-low net negative 54 percent.
Inflation and supply chain constraints remained top-of-mind for business owners as year-over-year inflation hit 8.6 percent, the largest increase since December 1981. The net percentage of owners increasing their average selling prices increased 2 points to a net 72 percent, matching March’s record-setting reading, and 32 points higher than in May 2021. According to the NFIB, price hikes were most frequent in wholesale, retail trades, manufacturing and construction. Thirty-nine percent of owners reported that supply chain disruptions had a significant impact on their business. Another 31 percent reported a moderate impact.
Labor markets continue to tighten, according to the NFIB: Roughly half of all owners reported they could not fill job openings, a 4-point increase from April. Forty-two percent have openings for skilled workers, and 25 percent have openings for unskilled labor. Challenges in filling open positions were especially noticeable in construction, manufacturing, retail and wholesale.
The current number of job openings is more than 20 percentage points higher than the historical average, according to the report. More than one-quarter of small business owners said they plan to fill open positions in the next three months, near a record high. However, more than nine-in-10 of those hiring or trying to hire said there were few or no qualified applications for the positions.
Small businesses are raising wages to adjust to the employee shortage: A net 46 percent reported increasing compensation, down three points from April. A net 25 percent plan to increase compensation in the next three months.
Twenty-five percent of small business owners plan capital outlays in the next few months. The frequency of reports of positive profit trends was a net negative 24 percent, down 7 points from April. Owners who were reporting lower profits cited the rising cost of materials, weaker sales and increased labor costs.
“A more positive view of the future economy and economic policy would help stimulate longer-term investment spending, but currently, owner views about the future are not supportive,” according to the NFIB. “In addition, Federal Reserve actions will raise interest rates, increasing the cost of financing capital projects and reducing the expected gains from investments.”