April 2023 Report: Labor Quality Becomes Top Small Business Problem, Followed by Inflation
Owners expecting better business conditions over next six months declined in April
NFIB’s Small Business Optimism Index decreased by 1.1 points in April to 89.0. This marks the 16th consecutive month below the survey’s 49-year history of 98. Labor quality was the top business problem at 24%, with inflation in second place by one point at 23%.
Key findings include:
- The frequency of reports of positive profit trends was a net negative 23%, five points worse than March.
- A net negative 5% of owners viewed current inventory stocks as “too low” in April, down six points from March. This suggests stocks are now too large relative to expected sales.
- The net percent of owners raising average selling prices decreased four points to a net 33% (seasonally adjusted).
- The net percent of owners who expect real sales to be higher deteriorated four points from March to a net negative 19%.
As reported in NFIB’s monthly jobs report, owners’ plans to fill open positions remain elevated, with a seasonally adjusted net 17% planning to create new jobs in the next three months. Seasonally adjusted, a net 40% reported raising compensation. A net 21% plan to raise compensation in the next three months. Nine percent cited labor costs as their top business problem and 24% said that labor quality was their top business problem.
Fifty-six percent of owners reported capital outlays in the last six months, down one point from March. Of those making expenditures, 40% reported spending on new equipment, 23% acquired vehicles, and 11% spent money on new fixtures and furniture. Fifteen percent improved or expanded facilities and 6% acquired new buildings or land for expansion. Nineteen percent of owners plan capital outlays in the next few months, down one point from March and historically very weak.
A net negative 9% of all owners (seasonally adjusted) reported higher nominal sales in the past three months, down three points. The net percent of owners expecting higher real sales volumes deteriorated four points to a net negative 19%.
The net percent of owners reporting inventory increases declined six points to a net negative 7%. Not seasonally adjusted, 13% reported increases in stocks and 19% reported reductions. Eighteen percent of owners recently reported that supply chain disruptions still have a significant impact on their business. Another 31% reported a moderate impact, and 37% reported a mild impact.
A net negative 5% of owners viewed current inventory stocks as “too low” in April, down six points from March. By industry, shortages are the most frequent in manufacturing (10%), agriculture (9%), retail (9%), and wholesale (8%). Shortages in construction (6%) have been reduced because home sales have slowed dramatically due to higher interest rates. A net negative 5% of owners plan inventory investment in the coming months, down one point from March.
The net percent of owners raising average selling prices decreased four points from March to a net 33% (seasonally adjusted), the lowest since March 2021. Unadjusted, 12% reported lower average selling prices and 48% reported higher average prices. Price hikes were the most frequent in construction (59% higher, 7% lower), retail (59% higher, 8% lower), wholesale (54% higher, 14% lower), and finance (52% higher, 5% lower). Seasonally adjusted, a net 21% plan price hikes.
The frequency of reports of positive profit trends was a net negative 23%, five points worse than in March. Among the owners reporting lower profits, 29% blamed weaker sales, 20% blamed the rise in the cost of materials, 13% cited the usual seasonal change, 10% cited labor costs, 9% cited lower prices, and 4% cited higher taxes or regulatory costs. For owners reporting higher profits, 51% credited sales volumes, 16% cited higher prices, 15% cited usual seasonal change, and 4% cited lower labor costs.
Two percent of owners reported that all their borrowing needs were not satisfied. Thirty percent of owners reported all credit needs were met and 59% said they were not interested in a loan. A net 6% reported their last loan was harder to get than in previous attempts, down three points. Four percent reported that financing was their top business problem. A net 26% of owners reported paying a higher rate on their most recent loan.
The NFIB Research Center has collected Small Business Economic Trends data with quarterly surveys since the fourth quarter of 1973 and monthly surveys since 1986. Survey respondents are randomly drawn from NFIB’s membership. The report is released on the second Tuesday of each month. This survey was conducted in April 2023.
Bill Dunkelberg is Chief Economist at the National Federation of Independent Business (NFIB)
