Small Businesses Battle Inflation and Workforce Shortages

The United States economy continues to be a source of concern for small businesses, with the ongoing worker scarcity and relentless inflation feeding into their pessimism. A slight rise in the Small Business Optimism Index was reported for December, but the atmosphere remains gloomy.

The National Federation of Independent Businesses (NFIB), the body representing small business owners, reported that the index saw a minor increase, reaching 91.9. However, this still falls well below the average of 98 that has been maintained over the past 48 years. This relatively low index reading marks two consecutive years of subpar optimism.

The predicament faced by small businesses is compounded by enduring issues like inflation and worker quality. The belief among these business owners is that these hurdles are here to stay, at least for the near future. As it stands, they don’t foresee any improvement in the situation in 2024.

With inflation surpassing labor issues as the primary problem, owners of small businesses increasingly find themselves struggling. For about 23% of these owners, surging prices have become the most critical issue in running their operations.

Inflation is still notably higher than the 2% goal set by the Federal Reserve, despite the significant drop from its 9.1% peak. Consequently, around 36% of business owners have started to raise prices to counteract the pain of inflating costs. Meanwhile, only 15% have reported a decrease in their average selling prices.

Moreover, the worker quality problem is of paramount concern to 20% of business owners. The low unemployment rate, coupled with a rapid rise in wages, has made it increasingly tough for small businesses to vie with big corporations to attract employees. To remain competitive, 36% of these businesses have increased their compensation packages, and nearly 29% have plans to raise wages in the coming quarter.

Labor costs have cropped up as a top concern for approximately 9% of business owners. As we wait for the newest consumer price index data, expectations are that it will further underscore the ongoing inflation issue. Economists anticipate a 0.2% monthly inflation hike and a 3.3% annual increase. The more stable core inflation, excluding food and energy, is also expected to rise by 0.2% for the month and 3.8% year over year, a worrying trend for small businesses.