American small-business confidence slightly climbed to a seven-month high last month, but concerns about inflation remain persistent, according to a recent report.
Pessimism over the U.S. economy diminished sharply, while sales expectations improved, but a persistently tight labor market is continuing to concern analysts about future inflation rates.
The National Federation of Independent Business (NFIB) Small Business Optimism Index, which was released on July 11, showed that small-business owners faced a tough situation following the banking crisis this spring, but were becoming more optimistic.
The index rose 1.6 points to 91 last month, the greatest month-to-month improvement since August 2022 and the highest level so far this year.
Sales expectations improved somewhat in June, as a growing percentage business owners expect weaker sales over the next three months.
“Halfway through the year, small-business owners remain very pessimistic about future business conditions and their sales prospects,” said NFIB chief economist Bill Dunkelberg.
Small-Business Optimism Remains Negative
Despite the improved economic outlook, June was the 18th straight month, that the index remained below the 49-year average of 98.
Inflation remains the biggest problem for small-business owners, along with lack of skilled workers, but price pressures had eased from their record peak last summer, said the report.
At least 24 percent of small-business owners called inflation their top concern last month, down from 25 percent in May and 13 points lower than the July 2022 peak, the highest reading since the fall of 1979.
Most small-business owners who were concerned about inflation also cited labor supply as their other main concern.
“Inflation and labor shortages continue to be great challenges for small businesses. Owners are still raising selling prices at an inflationary level to try to pass on higher inventory, labor, and energy costs,” said Mr. Dunkelberg.
The cost and demand for labor is slowing, but currently tight job market is still putting financial pressure on smaller businesses.
The NFIB survey showed that 42 percent of small-business owners in June said that job openings were hard to fill, down two percentage points from the previous month, but still historically high.
About 15 percent of them planned to create new jobs in the next quarter, down four percentage points from May.
Although the Department of Labor reported the smallest increase in non-farm payrolls in two and a half years due to a slowdown in hiring last month, wages still rose 4.4 percent from June 2022.
Bidenomics Accused of Favoring Big Business Over Mom & Pop Stores
Meanwhile, American small businesses have held a negative view of the economy since December 2020, when former president Donald Trump failed to successfully challenge the contested election results in his bid for reelection.
Some investors and business owners are not happy with the economic policies of the Biden administration.
Canadian investor Kevin O’Leary told Fox News on July 12 that President Joe Biden‘s economic policies were starving small American businesses in favor of their larger competitors.
“The problem with the policy so far and the multiple bills, including the CHIPS Act and, of course, the anti-inflation act, whatever you want to call it, is just massive spending, but it’s the target of where that spending went. Here is the problem: most of it’s going to the S&P 500 companies,” complained Mr. O’Leary.
“They’re important. They’re big employers in America. However, they only represent 40 percent of the economy. What we haven’t seen as the unintended consequence that’s now we’re seeing is that we’re starving small business in America.”
“You talk to anybody running a small business between five and 500 employees. They cannot raise any money. That’s bad economic policy. And that’s because Biden’s focused only on the big guys,” he added.
Small-Business Owners Making Future Investments Rises
The percentage of small owners predicting better business conditions for the rest of 2023 rose 10 points to a minus -40 in June, the best reading since February 2022, but still below zero, according to NFIB.
The rise in optimism may be a factor in a recent boost in small-businesses’ investment plans and price increase projections.
Twenty-five percent of small-business owners said last month that they planned new capital spending in the next three to six months, up from 21 percent in January.
Spending is up from a three-year low earlier in the spring when it hit 19 percent in the wake of the bank failures, but nearly a third of businesses admit plans to raise prices due to inflation.
At the same time, the net percent of owners raising average selling prices decreased three points, to an annual 29 percent, which is still high, but trending down. It is also the lowest reading since March 2021.
The trend toward rising retail prices would be unwelcome to Federal Reserve policymakers, since the central bank had already raised interest rates by five percentage points over the last 18 months to curb inflation.
“The Fed will be paying far closer attention to the slightly weaker tone of the employment report and the incoming CPI [Consumer Price Index] data when setting policy over the coming months,” Michael Pearce, lead U.S. economist for Oxford Economics, told Reuters.
“But the NFIB survey points to a combination of resilient investment spending, a still-strong labor market, and persistent price pressures,” he added.
Mr. Pearce believes that the results of the survey suggest that there will be at least two rate hikes by the Fed before the end of the year, starting with a 25 basis-point hike at the upcoming July policy rate meeting.
Reuters has contributed to this report.
