Small business owner sentiment remains well below average amid ongoing labor shortages and inflation, according to the National Federation of Independent Business.
The NFIB Small Business Optimism Index fell two points to 89.9 in January, the 25th straight month of the reading falling below its 50-year average of 98.
Twenty-one percent of owners reported labor quality as their most pressing issue in operating their business. The vast majority of owners either hiring or trying to hire reported few or no qualified applicants. Twenty percent cited inflation as their most pressing issue. A seasonally-adjusted net 22 percent of owners raised their average selling prices, while 15 percent lowered their prices, its highest reading since August 2020.
“Small business owners continue to make appropriate business adjustments in response to the ongoing economic challenges they’re facing,” said NFIB Chief Economist Bill Dunkelberg. “In January, optimism among small business owners dropped as inflation remains a key obstacle on Main Street.”
The frequency of positive profit trend reports fell five points to a net negative 30 percent. Of those with less profits, 32 percent cited weaker sales, 15 percent blamed seasonal changes or the rising costs of materials and 11 percent cited labor expenses. The net share of owners expecting sales volumes to increase fell 12 points to a net negative 16 percent.
Small business owners’ plans to hire for open positions in the next three months fell two points from December to a net 14 percent, which was its lowest reading since May 2020. Thirty-nine percent of owners had job openings they couldn’t fill, down one point from December and its lowest reading in three years. A net 39 percent raised their compensation, up three points from December, while a seasonally-adjusted net 26 percent expect to do so in the next three months.
Fifty-nine percent of owners made capital outlays in the last six months. Of those, 40 percent invested in new equipment, 25 percent acquired vehicles and 17 percent expanded or improved their facilities. Twenty-three percent plan capital outlays in the next few months.
“A recovery in investment is needed to support an improvement in productivity, but this is unlikely to occur while owners remain pessimistic about future business conditions and lending standards tighten with high interest rates,” according to NFIB.