NFIB report on inflation impact


The NFIB Small Business Optimism Index increased 0.5 points in January to 90.3, remaining below the 49-year average of 98. Down six points from last month, 26% of owners reported inflation was their single most important problem in operating their business. Owners expecting better business conditions over the next six months improved six points from December to a net negative 45%.

“While inflation is starting to ease for small businesses, owners remain cynical about future business conditions,” said NFIB Chief Economist Bill Dunkelberg. “Owners have a negative outlook on the small business economy but continue to try to fill open positions and return to a full staff to improve productivity.”

Key findings include:

  • Forty-five percent of owners reported job openings that were hard to fill, up four points from December, remaining historically very high.
  • The net percent of owners raising average selling prices decreased one point to a net 42% seasonally adjusted, too high for 2% target.
  • The net percent of owners who expect real sales to be higher worsened four points from December to a net negative 14%.

As reported in NFIB’s monthly jobs report, 57% of owners reported hiring or trying to hire in January. Of those hiring or trying to hire, 91% of owners reported few or no qualified applicants for the positions they were trying to fill.

Fifty-nine percent of owners reported capital outlays in the last six months, up four points from December, a positive development. Of those making expenditures, 42% reported spending on new equipment, 24% acquired vehicles, and 11% spent money for new fixtures and furniture. Fourteen percent improved or expanded facilities and 8% acquired new buildings or land for expansion. Twenty-one percent of owners plan capital outlays in the next few months.

A net negative 4% of all owners (seasonally adjusted) reported higher nominal sales in the past three months, four points better than December but still negative. The net percent of owners expecting higher real sales volumes deteriorated four points to a net negative 14%. Overall, a weak set of sales conditions.

The net percent of owners reporting inventory increases rose six points to a net 6%. Accumulation is starting now that supply problems are being resolved and consumer spending has eased. Not seasonally adjusted, 17% reported increases in stocks and 17% reported reductions. Twenty-five percent of owners recently reported that supply chain disruptions have had a significant impact on their business.

A net negative 1% of owners viewed current inventory stocks as “too low” in January, down two points from December. By industry, shortages are reported most frequently in wholesale (14%), retail (13%), manufacturing (11%), and finance (10%). A net negative 8% of owners plan inventory investment in the coming months, four points weaker than December, foreshadowing a reduction in orders for new stocks.

The net percent of owners raising average selling prices decreased one point from December to a net 42% seasonally adjusted, the lowest since May 2021 but far too high to be consistent with 2% inflation, the Fed’s goal. Unadjusted, 10% reported lower average selling prices and 51% reported higher average prices. Price hikes were the most frequent in construction (62% higher, 4% lower), retail (60% higher, 9% lower), wholesale (58% higher, 8% lower), and transportation (53% higher, 10% lower). Seasonally adjusted, a net 29% plan price hikes.

Seasonally adjusted, a net 46% of owners reported raising compensation. While other input costs are falling labor costs are resisting. A net 22% plan to raise compensation in the next three months, down five points from December. Ten percent of owners cited labor costs as their top business problem and 24% said that labor quality was their top business problem.

The frequency of reports of positive profit trends was a net negative 26%, four points better than December. Among owners reporting lower profits, 27% blamed weaker sales, 26% blamed the rise in the cost of materials, 15% cited the usual seasonal change, 11% cited labor costs, 10% cited lower profits, and 2% cited higher taxes or regulatory costs. For owners reporting higher profits, 53% credited sales volumes, 23% cited usual seasonal change, 11% cited higher prices.

Two percent of owners reported that all their borrowing needs were not satisfied. Twenty-six percent reported all credit needs met and 60% percent said they were not interested in a loan. Loan interest rates have started to rise sharply in response to Fed policy changes.

The NFIB Research Center has collected Small Business Economic Trends data with quarterly surveys since the 4th quarter of 1973 and monthly surveys since 1986. Survey respondents are randomly drawn from NFIB’s membership. The report is released on the second Tuesday of each month. This survey was conducted in January 2023.

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