Small Business Optimism Continues To Fall

The worst inflation in decades is bringing small business optimism to a new low, according to a recent study. 

The National Federation of Independent Business’ Small Business Optimism Index released July 12 dropped 3.6 points in June to 89.5.

This drop marks the sixth consecutive month below the near half a century average of 98.

Economic outlook, sales, and plans to increase employment are among the 10 components calculated in the report. All 10 components declined.

“As inflation continues to dominate business decisions, small business owners’ expectations for better business conditions have reached a new low,” NFIB chief economist Bill Dunkelberg said.

Top Issues

A net -61% of business leaders said they expect better business conditions in the next six months—the lowest in the index’s 48-year history.

A net -28% expect sales to be higher in the next three months, the lowest since pandemic-related shutdowns began.

Nearly a third (30%) cited the rise in the cost of materials, 16% blamed weaker sales, and 14% cited labor costs.

Researchers said declines in that component have traditionally preceded downturns in economic activity, strongly indicating bad times for the economy to come.

More than one-third of leaders listed inflation as their most pressing issue.

Quality of labor (23%) and taxes (11%) were the next highest on the list.

Labor Market

The biggest obstacle to employers is the lack of a skilled workforce. 

Half of the respondents reported having job positions they are unable to fill, down slightly from the previous month.

One-third of employers reported few qualified applicants for their positions, and more than a quarter (27%) reported no qualified applicants.

One-third of employers reported few qualified applicants for their open positions.

Job openings are particularly dire in Connecticut.

The most recent State Job Openings and Labor Turnover report from the Bureau of Labor Statistics showed an additional 9,000 job openings in Connecticut in May, for a total of 120,000 openings.

That 8% increase is the second largest in the country, behind only Massachusetts (9%).

Supply Chain

Supply chain disruptions have also taken a toll on business inventory.

According to the report, 39% of business owners recently reported supply chain disruptions have had a significant impact on their business. 

Thirty percent reported a moderate impact, 23% reported a mild impact, and only 6% reported no impact from supply chain disruptions.

Researchers note while unemployment has not been increasing, the shrinking of the GDP for two consecutive quarters is a telltale sign of a recession, and that small businesses will feel the brunt of the downturn.