Small business expectations for future conditions have hit a record low

Small business expectations for future conditions have hit a record low

Owners cite inflation as the biggest business problem, the highest since the 1980s

WASHINGTON, DC (July 12, 2022) – The NFIB Small Business Optimism Index fell 3.6 points in June to 89.5, marking the sixth consecutive month below the 48-year average of 98. Small business owners who expect better business conditions over the next six months , fell seven points to a net negative 61% , the lowest level recorded in the 48-year survey. Expectations for better conditions have worsened every month this year.

Inflation continues to be a top concern for small businesses, with 34 percent of owners reporting it is their most important problem in running their business, a six-point increase from May and the highest level since the fourth quarter of 1980.

“As inflation continues to dominate business decisions, small business owners’ expectations for better business conditions have hit a new low,” said NFIB Chief Economist Bill Dunkelberg. “In addition to the immediate challenges facing small business owners, including inflation and labor shortages, the outlook for economic policy is also not encouraging as policy talks have turned to higher taxes and more regulations.”

Key findings include:

  • The net percentage of owners who expect actual sales to be higher fell 13 points from May to a net negative 28%, a major decline.
  • Fifty percent of owners reported unfillable vacancies, down one point from May but historically very high.
  • The net percentage of owners increasing average sales prices fell three points to a seasonally adjusted net 69%, following record highs in May.

As reported in the NFIB’s monthly jobs report, owners’ plans to fill open positions remain elevated, with a seasonally adjusted net 19% planning to create new jobs over the next three months, but down seven points from May. Ninety-four percent of those hiring or trying to hire report few or no qualified candidates for the positions they are trying to fill.

Fifty-one percent of homeowners reported capital expenditures in the past six months, down two points from May. Of those making expenditures, 37% reported spending on new equipment, 23% purchased vehicles, and 14% improved or expanded facilities. Five percent acquired new buildings or land for expansion, and 13 percent spent money on new equipment and furniture. Twenty-three percent of homeowners are planning capital expenditures in the next few months, down two points from May.

A net negative 2% of all owners (seasonally adjusted) reported higher nominal sales over the past three months, down three points from May. The net percentage of owners expecting actual sales volumes fell 13 points to a net negative 28%.

The net percentage of owners reporting inventory increases fell three points to a net negative 4%. Thirty-nine percent reported that supply chain disruptions had a significant impact on their business. Another 30% reported a moderate effect and 23% reported a mild effect. Only 6% reported no impact from recent supply chain disruptions.

A net 5% of owners thought current inventory was “too low” in June, down three points from May and still surprisingly high. By industry, the shortage is most often reported in manufacturing (19%), retail trade (18%), agriculture (18%), construction (16%) and non-professional services (15%). A net negative 2% of owners plan to invest in inventory in the coming months.

The net percentage of owners raising average sales prices decreased three points from May to a net 69% (seasonally adjusted). Price-raising activity has escalated over the past 12 months, reaching levels not seen since the early 1980s, when prices rose at double-digit rates.

Unadjusted, 4% of owners reported lower average sales prices and 69% reported higher average prices. The most frequent price jumps are retail (80% higher, 3% lower), transport (78% higher, 0% lower), construction (75% higher, 4% lower) and wholesale (69% higher, 7% lower). Seasonally adjusted, net 44% plan price increases.

A net 48% (seasonally adjusted) reported an increase in compensation, down one point from May. A net 28% of owners plan to increase compensation in the next three months, up three points from May and historically very high. Eight percent of owners cited labor costs as the top business issue, and 23% said labor quality was the top business issue.

The frequency of reporting positive earnings trends was a net negative 25%, down one point from May. Among owners reporting lower profits, 30% blamed higher material costs, 16% blamed weaker sales, 14% cited labor costs, 14% cited lower prices, 7% cited the usual seasonal change, and 2% cite higher taxes or regulatory costs. For owners reporting higher profits, 51% cited sales volumes, 19% cited higher prices, and 17% cited the usual seasonal variation.

One percent of homeowners reported that all of their loan needs were not met. Twenty-seven percent reported that all credit needs were met, and 61% said they were not interested in a loan. A net 3% reported that their last loan was more difficult to obtain than previous attempts. Only 1% report that financing is their main business problem.

The NFIB Research Center has collected data on small business economic trends with quarterly surveys of 4th quarterly 1973 and monthly surveys since 1986. Survey respondents were randomly selected from NFIB members. The report is published every second Tuesday of the month. This survey was conducted in June 2022.

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