October 2023 Report: Inflation And Labor Struggles Continue To Hinder Small Businesses

Bill Dunkelberg

NFIB is celebrating 50 years of the Small Business Economic Trends survey, but small business owners are not feeling optimistic in the current economic environment. The Optimism Index decreased 0.1 points in October to 90.7, marking the 22nd month below the 50-year average. The last time the Optimism Index was at or above the average was December 2021.

Key findings include:

  • Twenty-two percent of owners reported that inflation was their single most important problem in operating their business, down one point from last month.
  • Owners expecting better business conditions over the next six months was unchanged from September at a net negative 43% (seasonally adjusted).
  • A net negative 17% of all owners (seasonally adjusted) reported higher nominal sales in the past three months, down nine points from September and the lowest reading since July 2020.
  • Forty-three percent (seasonally adjusted) of owners reported job openings that were hard to fill, unchanged from September and remains historically very high.
  • Seasonally adjusted, a net 24% plan to raise compensation in the next three months, up one point from September.
  • The frequency of reports of positive profit trends was a net negative 32%, down eight points from September.
  • The net percent of owners who expect real sales to be higher increased three points from September to a net negative 10%.


Forty-three percent (seasonally adjusted) of all owners reported job openings they could not fill in the current period, unchanged from September. Thirty-seven percent have openings for skilled workers (unchanged) and 18 percent have openings for unskilled labor (unchanged). The difficulty in filling open positions is particularly acute in the transportation, construction, and services sectors. Job openings in construction were down 4 points from last month but still over half have a job opening they can’t fill. Openings are lowest in the wholesale and finance sectors. Owners’ plans to fill open positions remain elevated, with a seasonally adjusted net 17 percent planning to create new jobs in the next three months, down 1 point from September and 15 points below its record high reading of 32 percent reached in August 2021. Overall, labor quality and availability are preventing owners from taking advantage of sales and growth opportunities. Overall, 61 percent reported hiring or trying to hire in October, unchanged from September. Fifty-five percent (90 percent of those hiring or trying to hire) of owners reported few or no qualified applicants for the positions they were trying to fill (down 2 points). Thirty-one percent of owners reported few qualified applicants for their open positions (up 1 point) and 24 percent reported none (down 3 points). Labor quality reported as the single most important problem for business owners was unchanged at 23 percent, and labor cost was also unchanged at 9 percent.  


Fifty-seven percent reported capital outlays in the last six months, unchanged from September. Of those making expenditures, 37 percent reported spending on new equipment (down 4 points), 24 percent acquired vehicles (up 2 points), and 18 percent improved or expanded facilities (up 1 point). Twelve percent spent money on new fixtures and furniture (unchanged) and 7 percent acquired new buildings or land for expansion (unchanged). Twenty-four percent plan capital outlays in the next few months, unchanged from September. A more positive view of the future economy and economic policy would help stimulate longer term investment spending, but currently, owners’ views about the future are not supportive and financing costs are very high. Investment is needed to address labor supply chain problems which still persist in the current environment. 


A net negative 17 percent of all owners (seasonally adjusted) reported higher nominal sales in the past three months, down 9 points from September and the lowest reading since July 2020. The net percent of owners expecting higher real sales volumes improved 3 points to a net negative 10 percent. The net percent of owners reporting inventory gains decreased 3 points to a net negative 6 percent. Not seasonally adjusted, 11 percent reported increases in stocks (down 2 points) and 16 percent reported reductions (up 1 point). A net negative 3 percent of owners viewed current inventory stocks as “too low” in October, up 1 point from September. By industry, shortages are reported most frequently in the transportation (16 percent), finance (12 percent), and retail (11 percent) sectors. A net 0 percent of owners plan inventory investment in the coming months, up 1 point from September.


Seasonally adjusted, a net 36 percent reported raising compensation, unchanged from September. A seasonally adjusted net 24 percent plan to raise compensation in the next three months, up 1 point from September. Nine percent cited labor costs as their top business problem, unchanged from September. Twenty-three percent said that labor quality was their top business problem (unchanged). The frequency of reports of positive profit trends was a net negative 32 percent, down 8 points from September. Among owners reporting lower profits, 32 percent blamed weaker sales, 21 percent blamed the rise in the cost of materials, 14 percent cited labor costs, 10 percent cited lower prices, 7 percent cited the usual seasonal change, and 4 percent cited higher taxes or regulatory costs. For owners reporting higher profits, 55 percent credited sales volumes, 20 percent cited usual seasonal change, and 7 percent cited higher selling prices.


Two percent of owners reported that all their borrowing needs were not satisfied (unchanged). Twenty-three percent reported all credit needs met (unchanged) and 64 percent said they were not interested in a loan (down 1 point). A net 7 percent reported their last loan was harder to get than in previous attempts (down 1 point). Five percent reported that financing was their top business problem (up 1 point). A net 22 percent of owners reported paying a higher rate on their most recent loan, down 4 points from September. The average rate paid on short maturity loans was 9.1 percent, down 0.7 percentage points from last month’s highest reading since December 2006. Twenty-seven percent of all owners reported borrowing on a regular basis (down 4 points). INFLATION The net percent of owners raising average selling prices increased 1 point from September to a net 30 percent seasonally adjusted. Twentytwo percent of owners reported that inflation was their single most important problem in operating their business, down 1 point from last month. Unadjusted, 11 percent (down 2 points) reported lower average selling prices and 39 percent (down 2 points) reported higher average prices. Price hikes were most frequent in finance (56 percent higher, 7 percent lower, as interest rates rise), retail (47 percent higher, 8 percent lower), construction (41 percent higher, 7 percent lower), transportation (41 percent higher, 18 percent lower), and wholesale (39 percent higher, 14 percent lower). Seasonally adjusted, a net 33 percent plan price hikes (up 3 points). 


This month marks the 50th anniversary of the Small Business Economic Trends survey. But while we celebrate the immense value of its 50 years’ worth of data and insights into the small business economy, small business owners are not in the mood to celebrate. Until very recently, virtually every “forecaster” had the economy slowing down this year and continuing at slower growth rates next year. The Fed’s model had growth rates with a 1% handle, Leading Economic Indicators were in the tank, the yield curve remained inverted. Slowdown was the new word as recession predictors were giving up in favor of a soft landing. What a difference a day makes! And then the government reported real GDP growth of 4.9% in Q3! That’s not a soft landing, it’s a “liftoff,” a 200% increase in the growth rate! However, small business sentiment fell in Q3, consumer sentiment is at recession levels, housing is struggling. So, where did the growth come from? Over 50% of the surge in growth came from the consumer, even with rising debt burdens. Another 16% of the growth was powered by government spending. But a stunning source of growth was the pile-up of inventories, stuff that was made but not sold in Q3. This accounted for 27% of the growth and will be a drag on Q4 growth as the inventories, rather than stuff made, are sold over the fourth quarter. Government spending rose at a 4.6% annual rates, consumer spending and residential investment at a 4% rate, and business investment declined slightly over the quarter. Small businesses are not growing their inventories, so the surge in inventory investment is maybe the pile-up of unsold electric vehicles and unused wind turbines. Their sales growth does not show the strength reported in the government numbers. Labor costs, energy costs, and most everything else small business owners pay for to operate their business are not falling, so firms continue to raise selling prices to keep up. This is a cycle that will complicate the Fed’s job. The recession expected to break the back of inflation has not appeared. Government numbers on the economy have been confounding all year, perhaps Q3 will be part of that trend – big revisions could still come. Small business owners will move into Q4 facing high interest rates, rising energy costs, and more regulation, wrapped in a dismal view about future economic conditions. Government spending continues to support jobs and consumer spending, but that’s not a foundation for solid economic growth.

Bill Dunkelberg is Chief Economist at the National Federation of Independent Business (NFIB)

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