Small Business Optimism Index retreats

William Dunkelberg

A measure of optimism among small business owners has retreated on less upbeat expectations for economic conditions and persistent concerns about labor shortages and inflation.

The National Federation of Independent Business reported its Small Business Optimism Index fell six-tenths of a point to 91.3 in August. The index has remained below its 48-year average of 98 for 20 straight months.

“With small business owners’ views about future sales growth and business conditions discouraging, owners want to hire and make money now from strong consumer spending. Inflation and the worker shortage continue to be the biggest obstacles for Main Street.” said Bill Dunkelberg, chief economist of the NFIB.

The NFIB bases the index on the results of monthly surveys of members of the small business advocacy group, most of them small business owners. Between July and August, five of 10 components of the index fell, three rose and two remained unchanged.

The proportion of NFIB members responding to the survey upon which the August index was based who expect the economy to improve fell seven points. At a net negative 37 percent, the latest reading remains at a recessionary level.

A net 24 percent of members said they plan to increase capital outlays, down three points. A net 6 percent said they consider now a good time to expand, unchanged from July.

The share of members who said they expect increased sales fell two points. At a net negative 14 percent, more anticipated decreased sales.

Expectations for earnings rose five points, but only to a net negative 25 percent. Among those reporting lower profits, 28 percent attributed the trend to lower sales, 24 percent cited rising materials costs and 15 percent blamed higher labor costs.

A net 17 percent of members said they plan to increase staffing, unchanged from a month ago. Meanwhile, 40 percent reported hard-to-fill job openings, down two points.

The proportion of members who said they plan to increase inventories rose two points to a net 0 percent. The share of those who said current inventories were too low fell a point to a net negative 5 percent.

Asked to identify their single most important problem, 24 percent of members cited quality of labor. But inflation came in a close second, garnering 23 percent of responses. A net 27 percent of members reported raising average selling prices. Price hikes were most frequent in the finance, construction and retail sectors.