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Continued Economic Conditions Put Small Business Owner Optimism At An All-Time Low

small business owner optimism
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EDITOR'S NOTE: 

Small business owners are not feeling very optimistic about the economy in the months ahead, according to the National Federation of Independent Business (NFIB) Optimism Index. Not surprisingly, inflation has everything to do with the dour mood. The index has been sinking for five months in a row and now occupies the lowest point ever recorded in its nearly 50-year history.

 

Why it matters: Not only do small business owners make up nearly 50% of the US economy, but they’re also more attuned to the economy than most people (mostly at an industry level). Business owners make critical decisions based on their estimates of near-term and long-term economic forecasts. Their success largely depends on the accuracy of their industry forecasts. 

Our insight: Collective pessimism among business owners across multiple industries and sectors may not be the brightest of signs.

Inflation, supply chain woes, labor shortages all taking a toll on economic conditions.

Small business owner optimism edged down for the fifth straight month in May, hitting the lowest point ever recorded as high inflation, supply chain challenges and labor shortages continue to take a toll.

The National Federation of Independent Business (NFIB) Optimism Index released Tuesday showed small business sentiment fell by 0.1 points last month to 93.1, with the number of small business owners expecting conditions to improve over the next six months dropping four points to a net negative 54%.

That is the lowest level in the survey's 48-year history.

INFLATION CREATING ‘STRESS’ IN THE ECONOMIC ENVIRONMENT: PHILADELPHIA FED BOARD MEMBER

The data indicates that inflation, which sits at a 40-year high, is a significant factor for small business owners, with 28% citing it as their top problem. The number of respondents that reported raising their average selling prices also hit a record high of 72%, which is 32 points higher than the same month last year.

"Inflation continues to outpace compensation which has reduced real incomes across the nation," said NFIB chief economist Bill Dunkelberg. "Small business owners remain very pessimistic about the second half of the year as supply chain disruptions, inflation, and the labor shortage are not easing."

WHOLESALE INFLATION CLIMBS 10.8% IN MAY, HOVERING NEAR 40-YEAR HIGH

The second-highest problem cited by small business owners was labor quality, with 23% saying it was their biggest headache. Of the respondents that said they were hiring or trying to hire more workers, 92% reported that there were few or no qualified applicants for the positions they were seeking to fill.

The number of owners reporting that they had job openings that could not be filled rose to 51% in May, up four points from the month before, according to the NFIB, in a clear sign that the ongoing worker shortage persists.

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Meanwhile, the number of small businesses that said they raised employee pay last month dropped three points to 46%, providing further evidence that soaring inflation is wiping out most Americans' wage gains.

Originally published on Fox Business.

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