Inflation continues to dampen small business optimism

Inflation continues to dampen small business optimism

The National Federation of Independent Business (NFIB) Small Business Optimism Index in December marked the 24th consecutive month below the 50-year average of 98. According to the index, 23% of small business owners said inflation was a top concern. quality of work.

Holly Wade, NFIB Research Director, joins Yahoo Finance to discuss the index reading and provide insight into how small business owners are feeling about the economy and how it may impact the broader market.

Wade explains some of the stress higher inflation puts on small businesses, which in turn is passed on to consumers: “We found in our survey that the first hit to inflationary pressures is the earnings of business owners, and so earnings tend to suffer over a period of time. .so the first hit is the profits of the business owners, and then they pass those costs on to the customers of the goods and services they sell. But that process takes a while.”

For more expert insight and the latest market action, click here to watch this full episode of Yahoo Finance Live.

Editor’s note: He wrote this article Nicholas Jacobino

Video Transcript

JOSH LIPTON: Now that earnings season is underway, we’re checking in on how people on Main Street are feeling. The answer is, not great. Small business optimism fell below average for the 24th straight month in December. That’s according to the National Federation of Independent Business.

Here’s more from Holly Wade, Executive Director of the NFIB Research Center, on what’s holding America’s small businesses back. Holly, it’s great to have you on the show. Maybe start there, Holly, the 30,000-foot view. How are small business owners feeling right now? Can you tell us about what you see in the surveys?

HOLLY WADE: Of course. Thank you for having me. Small business owners, on the other hand, are quite pessimistic, still concerned about the outlook for business conditions and expansion opportunities in the next six months. We have seen the same environment for about the last year and a half. And as you noted, our index, where we’ve been collecting this data for 50 years, has been below the 50-year average of 98 for two years now, and has been in recession in the last year in particular. they have to operate with high inflation rates and a still tight labor market.

JULIE HYMAN: So when we were talking about inflation, Holly, obviously we were talking about slowing inflation now. But if you look at the current prices compared to three years ago, they are still much higher than then. So inflation is still on these people’s minds? And how did they fit in?

HOLLY WADE: Absolutely. So we found in our survey that the first hit to inflationary pressures is the earnings of business owners. So earnings have been deteriorating for some time. And we have seen some progress in that direction. So the first hit is the earnings of the business owners. And then they pass those costs on to customers of the goods and services they sell.

But this process takes some time. They also do everything you’d expect internally and try to increase productivity in their business, absorbing those costs in other ways. But when that’s coupled with the rising costs of their supply and inventory, compensation costs that still struggle to retain existing employees and attract applicants for open positions we’re still seeing very high levels of. And then, for some, the increase in finance costs has become quite difficult to reabsorb those costs and find a way to stay competitive and pass those costs on to their customers.

JOSH LIPTON: What about Holly, current affairs? What do small business owners do? Are they hiring? Are they downsizing? What are the trends you see?

HOLLY WADE: We’re still seeing very high levels — historically high levels of jobs in the small business sector. They seek to recruit and fill these positions with applicants who meet the minimum qualifications. They are of course still willing to practice at home. This requires a lot of resources among small business owners in training and upskilling some of the applicants they want to fill these positions. So it’s still very strong.

It’s frustrating many owners who have had problems lately – well, since the start of the pandemic and filling these positions. And this was one of their main problems. Still, one in five small business owners say the number one challenge facing their business is the labor market.

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