Recent data showcases small business owners’ challenges in today’s unpredictable economy. Labor quality, inflation, and hiring difficulties continue to be top concerns, according to the latest report from the NFIB Small Business Optimism Index.
In a world where data is crucial for decision-making, the July report revealed a minor rise in optimism among small businesses. The index increased by 0.9 points to 91.9. However, this remains below the 49-year average of 98 for the 19th consecutive month. NFIB Chief Economist Bill Dunkelberg noted, “With small business owners’ views about future sales growth and business conditions dismal, owners want to hire and make money now from solid consumer spending. Inflation has eased slightly on Main Street, but difficulty hiring remains a top business concern.”
While inflation concerns have slightly decreased (down three points from June), it’s notable that 21% of small business owners still consider it their single most pressing issue. On the brighter side, the outlook for future business conditions over the next six months improved significantly. It’s 31 percentage points better than last June’s net negative of 61%, even though it remains historically negative.
One of the most prominent issues confronting small businesses is hiring. A staggering 42% of owners reported job openings that were hard to fill, unchanged from June, and historically very high. To further underscore the issue, 92% of those hiring or attempting to hire mentioned they found few or no qualified applicants for their vacancies.
Capital outlay data, which is vital for the small business ecosystem, paints a mixed picture. Fifty-five percent of owners reported making capital expenditures in the past half-year. Of those, 38% invested in new equipment, 22% acquired vehicles, and 15% expanded or improved their facilities. While these figures suggest investments in growth and infrastructure, the nominal sales reported by a net negative 13% of all owners indicate underlying challenges in revenue generation.
Inventory management has always been a balancing act for small businesses. The net percent of owners reporting inventory gains remained static at a negative 3%. Across industries, inventory shortages were most commonly reported in retail, transportation, manufacturing, and services.
Price setting and employee compensation are additional areas where small businesses have felt the pinch. A net 25% of owners have increased their selling prices, but this figure, the lowest since January 2021, has decreased by four points since June. Meanwhile, a net 38% reported raising compensation for their employees, highlighting the competitive market for quality labor.
Profit trends offered another perspective on the overall health of the small business sector. With a net negative 30% of owners reporting positive profit trends, many have attributed weaker sales, rising material and labor costs, and regulatory expenses as primary reasons.
On the topic of financing, the vast majority (62%) showed no interest in loans, and only 3% indicated unmet borrowing needs. Importantly, Fed policies, such as interest rate hikes, seem to have had minimal impact on these small businesses.
While there are sparks of optimism, it’s evident that small business owners continue to navigate a myriad of challenges in an ever-evolving economic environment. With labor quality, inflation, and hiring concerns at the forefront, the resilience and adaptability of these entrepreneurs will determine the future trajectory of the small business landscape.
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