As inflationary pressures continue to stifle the economy, American small business owners are increasingly pessimistic, according to a Tuesday report from the National Federation of Independent Businesses (NFIB).
The group’s Small Business Optimism Index declined to 89.5 — a 3.6 point drop, marking the sixth consecutive month in which the metric stayed below the nearly five-decade average of 98. Rising inflation is top of mind for business leaders, with 34% of owners calling the phenomenon their “single most important problem” — the highest level since 1980.
“As inflation continues to dominate business decisions, small business owners’ expectations for better business conditions have reached a new low,” NFIB Chief Economist Bill Dunkelberg remarked in a press release. “On top of the immediate challenges facing small business owners including inflation and worker shortages, the outlook for economic policy is not encouraging either as policy talks have shifted to tax increases and more regulations.”
From May to June, the net portion of owners expecting real sales to increase fell by 13% to hit a net negative of 28%. However, 69% are raising average selling prices, while only 4% are reporting lower selling prices.
The Producer Price Index (PPI) increased 10.8% from May 2021 to May 2022, according to the U.S. Bureau of Labor Statistics. The index’s rise was driven largely by energy costs soaring 5% during the month of May and transportation expenses increasing nearly 3% — a phenomenon that occurred as gas prices surpassed a national average of $5 per gallon, which has since eased to $4.66 as of Tuesday, per AAA.
White House Press Secretary Karine Jean-Pierre, therefore, told reporters on Monday that Consumer Price Index (CPI) data slated for release on Wednesday will not accurately reflect the current state of the economy. “We expect the headline number, which includes gas and food, to be highly elevated, mainly because gas prices were so elevated in June,” Jean-Pierre said. “Gas and food prices continue to be heavily impacted by the war in Ukraine. And there are a few important points to keep in mind when we get this backwards-looking data.”
On the other hand, 19% of small business owners are planning to create new jobs over the next three months, while 50% are reporting that they have job openings they are unable to fill — a finding that the group characterizes as “historically very high.” Meanwhile, Biden administration officials have pushed the tight labor market as an economic silver lining.
“When we look at where we are economically — and we are stronger economically than we have been in history,” Jean-Pierre commented last week. “When you look at the unemployment numbers at 3.6%, when you look at the jobs numbers, more than 8.7 million of new jobs created, that is important.”
Although the unemployment rate has improved significantly from the 14.7% level seen in April 2020, the labor force participation rate — the portion of eligible Americans who either have a job or are actively looking for one — continues to lag behind pre-recession levels, contributing to inflationary pressures as business owners are forced to hike wages.
Even as nominal wages rise, real average hourly wages — which account for the impact of inflation — dropped 3% from May 2021 to May 2022, meaning Americans must tighten their budgets to experience the same standard of living seen last year.