Since 1937, The National Federation of Independent Business (NFIB) surveys its members to collect data on small business economics and the sentiments of entrepreneurs. This information comprises the NFIB Small Business Optimism Index.
This monthly report is used by investors, economic analysts, and other professionals to gauge current feelings and general outlook of small business owners. The resulting information is important for gauging bigger trends in the economy—particularly as small businesses are usually the first to really feel the effects of economic ripples, due mainly to their narrower capital compared to larger and corporate organizations.
The NFIB’s small business survey indexes optimism based on a series of components. These include plans to take on new employees, plans to grow inventory, currents earnings trends, outlook on the economy overall, and plans for expansion, among other indicators. The sentiments expressed in each category can help uncover common problems affecting small business owners, as well as the job market, potential for new business openings, and pricing trends.
When taken as a collective, this information can be useful for distilling a wider sense of prosperity or difficulty, however, business confidence is still subjective. And when business report data are measured in the dichotomy of optimism and pessimism, sentiments can sometimes be exaggerated.
Business Confidence Slips To A New Low
Currently, small business owners are feeling pessimistic about growth in the near future. According to the NFIB, U.S. small business confidence has fallen to a two-year low. This new dip comes after long and difficult years of coping with the effects of the Covid-19 pandemic.
While labor and supply chain issues have remained pressing concerns for all types of companies–with small businesses feeling the greatest setbacks–inflation and the rising cost of essential business operations now top the list of difficulties. Worries over inflation have not been this prevalent since 1981, which is inline annual inflation rate’s recent increase to a 40-year high.
The rising cost of supplies, energy, and transportation, combined with low-interest rates and labor shortages, have many business owners raising their prices in turn. Although inflation is a dominant concern, nearly half of the small businesses surveyed have reported unfilled job openings as a major obstacle. Until this first quarter, finding qualified workers was ranked as the most pressing problem.
Of course, these two issues are closely related; if inflation hinders the ability to offer competitive compensation to current and incoming employees, this problem could get worse. With the majority of small businesses operating with reduced capital, investments in new equipment and vehicles, and facility expansions are in the decline. Supply chain disruptions and low inventory stock also continue to hinder positive outlooks.
What Can Be Done To Improve Small Business Outlook?
A lot will need to come together for small business prosperity to improve, and that’s likely to take time. There has been mounting pressure on Congress to deliver more funding to combat labor stagnation and improve resilience against the rising cost of business operations. Per CNBC and SurveyMonkey’s Small Business Survey for the first quarter of 2022, nearly two-thirds of small business owners support federally-funded relief to aid with rising operational costs. Despite a majority call for more support, federal action remains sluggish.
If the Federal Reserve increases interest rates, the pace of inflation will slow, but price jumps and persistent labor shortages mean that small business owners may retain their pessimism for some time—especially as consumers are likely to continue curbing their spending.
Rising energy costs due to the Russian invasion of Ukraine and other geopolitical factors are expected to have long-term and widespread economic impacts as well. However, bright spots for the coming months may be found if unemployment rates can be kept low and supply chain issues smooth out following lingering pandemic upsets.