September 2022 Report: Inflation Remains Top Business Problem for Small Business Owners
NFIB’s Small Business Optimism Index rose 0.3 points in September to 92.1, making the ninth consecutive month below the 48-year average of 98. Thirty percent of owners reported that inflation was their single most important problem in operating their business.
Key findings include:
- Small business owners expecting better business conditions over the next six months improved 10 points from July to a net negative 42%, the highest level since February 2022, but a dismal outlook.
- The net percent of owners raising average selling prices decreased three points to a net 53% (seasonally adjusted), still a very inflationary outcome.
- The net percent of owners who expect real sales to be higher increased 10 points from July to a net negative 19%, but owners still want to hire.
- The Uncertainty Index increased seven points to 74.
As reported in NFIB’s monthly jobs report, owners’ plans to fill open positions remain elevated, with a seasonally adjusted net 23% of planning to create new jobs in the next three months. Of those owners trying to hire, 89% reported few or no qualified applicants for the positions they were trying to fill.
Fifty-six percent of owners reported capital outlays in the last six months, up four points. Of those making expenditures, 40% reported spending on new equipment, 22% acquired vehicles, and 16% improved or expanded facilities. Nine percent spent money for new fixtures and furniture and 6% acquired new buildings or land for expansion. Twenty-four percent plan capital outlays in the next few months, down one point.
A net negative 5% of all owners (seasonally adjusted) reported higher nominal sales in the past three months, up three points from August. The net percent of owners expecting higher real sales volumes improved by nine points to a net negative 10%.
The net percent of owners reporting inventory increases improved four points to a net negative 2%, Sixteen percent of owners reported increases in stocks and 17% reported reductions as solid sales reduced inventories at many firms.
Thirty-two percent of owners reported that supply chain disruptions have had a significant impact on their business. Thirty-four percent report a moderate impact and 22% report a mild impact. Only 10% of owners report no impact from recent supply chain disruptions.
A net 1% of owners viewed current inventory stocks as “too low” in September, down two points from August. A net 0% of owners plan inventory investments in the coming months down four points from August.
The net percent of owners raising average selling prices decreased two points from August to a net 51% (seasonally adjusted). Unadjusted, 9% of owners reported lower average selling prices and 59% reported higher average prices. Price hikes were the most frequent in retail (73% higher, 11% lower), construction (69% higher, 3% lower), transportation (68% higher, 5% lower), and wholesale (64% higher, 0% lower). Seasonally adjusted, a net 31% of owners plan price hikes.
A net 45% of owners reported raising compensation, down one point from August. A net 23% of owners plan to raise compensation in the next three months, down three points from August but historically still very high. Ten percent of owners cited labor costs as their top business problem and 22% said that labor quality was their top business problem.
The frequency of reports of positive profit trends was a net negative 31%, up two points from August. Among owners reporting lower profits, 42% blamed the rise in the cost of materials, 21% blamed weaker sales, 12% cited labor costs, 8% cited lower prices, 6% cited the usual seasonal change, and 3% cited higher taxes or regulatory costs. For owners reporting higher profits, 44% credited sales volumes, 24% cited usual seasonal change, and 18% cited higher prices.
Two percent of owners reported that all their borrowing needs were not satisfied. Twenty-six percent reported all credit needs met and 62% said they were not interested in a loan. A net 5% reported their last loan was harder to get than in previous attempts.
The NFIB Research Center has collected Small Business Economic Trends data with quarterly surveys since the 4th 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 September 2022.
LABOR MARKETS
Forty-six percent (seasonally adjusted) of all owners reported job openings they could not fill in the current period, down 3 points from August. Forty-two percent have openings for skilled workers (up 1 point) and 22 percent have openings for unskilled labor (down 2 points). The difficulty in filling open positions is particularly acute in the transportation, manufacturing, and construction sectors. Openings are lowest in the finance and agriculture sectors. Overall, however, the current level of openings is over 20 percentage points higher than the historical average for Main Street firms. Owners’ plans to fill open positions remain elevated, with a seasonally adjusted net 23 percent planning to create new jobs in the next three months (up 2 points). Fifty-seven percent (89 percent of those hiring or trying to hire) of owners reported few or no qualified applicants for the positions they were trying to fill (unchanged). Twenty-seven percent of owners reported few qualified applicants for their open positions (down 4 points) and 30 percent reported none (up 4 points, and a 48-year record high reading).
CAPITAL SPENDING
Fifty-six percent reported capital outlays in the last six months, up 4 points from August. Of those making expenditures, 40 percent reported spending on new equipment (up 4 points), 22 percent acquired vehicles (up 4 points), and 16 percent improved or expanded facilities (up 2 points). Nine percent spent money for new fixtures and furniture (down 4 points) and 6 percent acquired new buildings or land for expansion (unchanged). Twenty-four percent plan capital outlays in the next few months, down 1 point from August. 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. Investment is needed to address labor supply chain problems in the current environment. In addition, Federal Reserve actions will continue to raise interest rates, increasing the cost of financing capital projects and reducing the expected gains from investments.
INFLATION
The net percent of owners raising average selling prices decreased 2 points from August to a net 51 percent seasonally adjusted. Unadjusted, 9 percent (up 1 point) reported lower average selling prices and 59 percent (down 1 point) reported higher average prices. Price hikes were most frequent in retail (73 percent higher, 11 percent lower), construction (69 percent higher, 3 percent lower), transportation (68 percent higher, 5 percent lower), and wholesale (64 percent higher, 0 percent lower). Seasonally adjusted, a net 31 percent plan price hikes (down 1 point).
CREDIT MARKETS
Two percent of owners reported that all their borrowing needs were not satisfied (down 2 points). Twenty-six percent reported all credit needs met (up 3 points) and 62 percent said they were not interested in a loan (up 2 points). A net 5 percent reported their last loan was harder to get than in previous attempts (down 1 point). One percent reported that financing was their top business problem (unchanged). A net 22 percent of owners reported paying a higher rate on their most recent loan, up 1 point from August. The average rate paid on short maturity loans was 6.7 percent. Twenty-six percent of all owners reported borrowing on a regular basis (down 1 point).
COMPENSATION AND EARNINGS
Seasonally adjusted, a net 45 percent reported raising compensation, down 1 point from August. A net 23 percent plan to raise compensation in the next three months, down 3 points from August. Ten percent cited labor costs as their top business problem, unchanged from August, and 22 percent said that labor quality was their top business problem (down 4 points). Labor quality remains in second place behind “inflation” by 8 points. The frequency of reports of positive profit trends was a net negative 31 percent, up 2 points from August. Among owners reporting lower profits, 42 percent blamed the rise in the cost of materials, 21 percent blamed weaker sales, 12 percent cited labor costs, 8 percent cited lower prices, 6 percent cited the usual seasonal change, and 3 percent cited higher taxes or regulatory costs.
SALES AND INVENTORIES
A net negative 5 percent of all owners (seasonally adjusted) reported higher nominal sales in the past three months, up 3 points from August. The net percent of owners expecting higher real sales volumes improved by 9 points to a net negative 10 percent. The net percent of owners reporting inventory increases improved 4 points to a negative 2 percent. Not seasonally adjusted, 16 percent reported increases in stocks and 17 percent reported reductions. Thirty-two percent of owners recently reported that supply chain disruptions have had a significant impact on their business. Another 34 percent report a moderate impact and 22 percent report a mild impact. Only 10 percent report no impact. A net 1 percent of owners viewed current inventory stocks as “too low” in September, down 2 points from August. By industry, shortages are reported most frequently in transportation (21%), agriculture (20%), retail (19%), wholesale (18%), and manufacturing (14%). A net 0 percent of owners plan inventory investment in the coming months down 4 points from August.
COMMENTARY
Inflation is proving to be anything but “temporary”. Oil (gas, etc.) prices have fallen but not much else. The percent of firms on Main Street reporting higher selling prices remained very high, car dealers, grocery stores, restaurants, all raising prices, not just the Dow Jones firms. Services are leading the way.
Compensation is still rising steadily but not nearly as fast as inflation, so “real” wages are falling and so is the value of assets like savings accounts and 401k holdings. Having inflation return to 2% will not restore this wealth loss. Only a period of falling prices (and wages) can do this and that would require a lot more than a soft landing.
Many observers feel that to stomp out inflation now, interest rates must exceed the inflation rate (real interest rates above zero). That would require more large Fed rate hikes even if inflation rates start falling to meet rising Fed rates. Mortgage rates have more than doubled, already slowing home sales and new construction. And the resulting strong dollar has reduced demand for our exports. It will be a painful but unavoidable process.
The Administration remains focused on climate change (the real content of the Inflation Reduction Act), student loans, and campaigning, nothing helpful for small businesses.
Bill Dunkelberg is Chief Economist at the National Federation of Independent Business (NFIB)
