Optimism among small business owners improved in August but remained lower than average as inflation continues to stifle growth expectations, according to the National Federation of Independent Business.
The NFIB Small Business Optimism Index increased by nearly two points in August to 91.8, the eighth consecutive month below the 48-year- average of 98. Inflation continued to pose challenges: Nearly 30 percent of owners reported it was their No. 1 problem in operating their business, although that was an eight-point decline from July’s 43-year high. Thirty-two percent of owners said supply chain disruptions had significantly impacted their business. One-in-three reported a moderate impact.
Owners also reported several indicators that inflation is falling from decades-high readings. The net percentage of owners raising average selling prices dropped three points to 53 percent. Nearly one-in-three owners plan price increases, a five-point drop. According to the Federal Reserve Bank of New York, median one- and three-year-ahead inflation expectations dropped from 6.2 percent to 5.7 in August, while the three-year measure fell to 2.8 percent from 3.2 percent.
“The small business economy is still recovering from the pandemic while inflation continues to be a serious problem for owners across the nation,” said NFIB Chief Economist Bill Dunkelberg. “Owners are managing the rising cost of utilities, fuel, labor, supplies, materials, rent, and inventory to protect their earnings.”
Small business spending remained historically low. Slightly more than half of owners made capital outlays over the past six months, and twenty-five percent plan to do so in the next six months. A net negative eight percent of all owners reported higher nominal sales over the past three months, a three-point drop from July. The net percent of owners anticipating higher real sales volumes increased by 10 points to a net-negative 19 percent. The frequency of positive profit trend reports was a net-negative 33 percent, a seven-point drop from July, as owners cited an increase in materials costs, weaker sales, higher labor costs and other factors.
A net 26 percent plan to raise compensation in the next three months. Small business owners expecting better business conditions over the next six months, though still historically low, increased 10 points from July to a net-negative 42 percent. The percentage of owners expecting real sales to grow increased 10 points from July to a net-negative 19 percent. The labor market remained tight: Nearly half of owners had job openings that were challenging to fill.