Small business sentiment drops to 48-year low as inflation fears mount
Small business confidence slipped again in June as fears of severe inflation persisted, with most business owners since 1980 reporting rising prices as their single most important problem, according to a new survey published Tuesday.
The National Federation of Independent Business, an association of small business owners in Tennessee, said the Small Business Optimism Index fell to 89.5 last month, the sixth consecutive month of readings below the 48-year average of 98.
The outlook looks increasingly bleak for many small businesses, with the percentage of owners expecting better business conditions over the next six months dropping to the lowest level recorded in the 48-year survey. Expectations for improved business conditions have deteriorated sequentially over the past six months.
The biggest problem, according to the survey, is inflation: 34% of small business owners report rising prices as the single most important problem in operating their business, the highest reading since 1980.
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“With inflation continuing to dominate business decisions, small business owners’ expectations of better business conditions have reached a new low,” NFIB chief economist Bill Dinkelberg said in a statement. “On top of the urgent challenges facing small business owners including inflation and labor shortages, the outlook for economic policy is not encouraging as policy talks have shifted to higher taxes and more regulations.”
Job opportunities are still close to record levels
Severe hyperinflation forced the Federal Reserve to move at its fastest pace in decades to raise interest rates in order to tame consumer demand, fueling fears on Wall Street of slowing growth or even a possible recession. Policymakers agreed to raise the benchmark rate by 75 basis points in June, the first since 1994, and are expected to raise rates by another 75 basis points in July.
Companies also struggled to hire new employees, with half of owners reporting they could not fill vacancies. The Labor Department reported last week that there were 11.3 million job openings at the end of May. The number of available jobs has exceeded 10 million for eight consecutive months; Before the pandemic began in February 2020, the highest recorded level was 7.7 million.
Among small businesses trying to hire new workers, a staggering 94% reported that few or no qualified individuals applied for the position they were trying to fill.
The Fed is trying to calm the labor market without causing unemployment to increase dramatically.
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In the face of labor shortages, small businesses have responded by raising wages: 48% of respondents said they raised their salaries in June, while 28% of owners plan to increase compensation in the next three months. In all, 8% of business owners cited labor costs as the biggest problem facing their business, while 23% cited labor quality.