Small business optimism drops as inflationary pressures rise

Tony Gagliardi NFIB
William Dunkelberg

A measure of optimism among small business owners has declined even as concerns mount over inflationary pressures pushing prices and wages higher.

“More small business owners started the new year raising prices in an attempt to pass on higher inventory, supplies and labor costs,” said Bill Dunkelberg, chief economist of the National Federation of Independent Business.

Tony Gagliardi, state director of the NFIB in Colorado, blamed the situation in part on supply chain disruptions. “This disruption is partially responsible for increased consumer prices. Small businesses can no longer absorb increased wholesale prices. Those prices must now be passed along.”

The NFIB reported its Small Business Optimism Index fell 1.8 points to 97.1 in January. 

The small business advocacy group bases the index on the results of monthly surveys of members, most of them small business owners. For January, seven of 10 components of the index retreated.

Asked to identify their single most important business problem, 22 percent of those who responded to the survey upon which the January index was based cited inflation — tying the reading in December for the highest level since 1981. Eleven percent cited labor costs and 23 percent cited quality of labor. 

A net 61 percent of owners reported raising average selling prices, up four points from December to the highest reading since 1974. A net 50 percent of owners reported raising compensation, the largest proportion in the 48-year history of the index. A net 27 percent said they plan to increase compensation in the next three months.

The proportion of business owners who expected the economy to improve rose two points. But at a net negative 33 percent, more respondents anticipated worsening conditions. 

A net 29 percent reported plans to make capital outlays, unchanged from December. A net 9 percent said they consider now a good time to expand, down two points.

A net 26 percent of owners reported plans to increase staffing, down two points. A net 47 percent reported unfilled job openings, also down two points.

The share of those who said they expect more sales dropped six points to a net negative 6 percent.

The share of those reporting higher earnings fell three points to a net negative 17 percent. Among those reporting lower profits, 32 percent blamed the rising cost of materials and 19 percent cited weaker sales.

A net 3 percent of owners reported plans to increase inventories, down five points. A net 7 percent said existing inventories were too low, down two points.