A Mixed Bag: NFIB Report Highlights Small Business Economic Challenges and Hopes

Small business owners are confronting an array of economic challenges. The latest report from the National Federation of Independent Business (NFIB) offers a nuanced view of the current situation.

The Optimism Index: A Closer Look

July 2023 saw the NFIB’s Small Business Optimism Index rise to 91.9 from 91.0 in June, indicating a slight upward trajectory. However, it’s worth noting that this figure remains below the 49-year average of 98, marking the 19th straight month it has done so.

Inflation and Labor: The Twin Concerns

The issues of inflation and labor quality have been at the forefront for many small business owners. While these concerns somewhat eased in July, with 21% and 23% listing them as top concerns respectively, they remain historically high. In particular, the inflation data shows that the net percentage of businesses raising prices decreased but still holds at an inflationary level. On the labor front, 42% of businesses reported unfilled job openings, a trend consistent with the previous month.

Sales and Business Conditions

Expectations surrounding real sales and future business conditions show mixed feelings among business owners. While some indicators showed improvement, such as business owners expecting better conditions in the upcoming months, others, like the real sales expectations, remain in negative territories.

The Consumer Spending Angle

Bill Dunkelberg, the NFIB’s chief economist, highlighted the importance of consumer spending. Recent data from the Bureau of Economic Analysis underscores this point, revealing that consumer expenditure was a major contributor to U.S. economic growth in Q2, despite a slowdown from Q1.

Labor Market Resilience

Despite the challenges, the labor market has shown signs of resilience. The July jobs report showed an addition of 187,000 jobs, which is considered robust by many experts. However, small business owners face hurdles in hiring, especially in sectors like construction, manufacturing, and transportation.

Wages and Compensation

With the labor market’s robustness, 38% of business owners reported raising compensation in July. This mirrors the increase in average hourly earnings reported for the same month.

Upcoming Indicators

With the Consumer Price Index’s release around the corner, business owners await further data to gauge if the easing inflation trend will continue.