The National Federation of Independent Business’ (NFIB) Small Business Optimism Index fell two points in January to 89.9, marking the 25th consecutive month below the 50-year average of 98.
The net share of owners who expect real sales to be higher declined 12 points from December to a net negative 16 percent (seasonally adjusted), a very negative shift in expectations.
“Small-business owners continue to make appropriate business adjustments in response to the ongoing economic challenges they’re facing,” NFIB Chief Economist Bill Dunkelberg said in a release. “In January, optimism among small-business owners dropped as inflation remains a key obstacle on Main Street.”
Key findings for January include:
• The frequency of reports of positive profit trends was a net negative 30 percent, five points worse than in December and a very poor reading.
• Twenty percent of owners reported that inflation was their single most important problem in operating their business, down three points from last month and one point behind labor quality as the top problem.
• Small-business owners’ plans to fill open positions softened, with a seasonally adjusted net 14 percent planning to create new jobs in the next three months, down two points from December and the lowest level since May 2020.
• Thirty-nine percent (seasonally adjusted) of all owners reported job openings they could not fill in the current period, down one point from December and the lowest reading since January 2021.
As reported in NFIB’s monthly jobs report, 39 percent (seasonally adjusted) of all owners reported job openings they could not fill in the current period. Seasonally adjusted, a net 39 percent reported raising compensation, up three points from December. A seasonally adjusted net 26 percent plan to raise compensation in the next three months, down three points from December. Ten percent cited labor costs as their top business problem and 21 percent said that labor quality was their top business problem.
Fifty-nine percent of owners reported capital outlays in the last six months, up one point from December. Of those making expenditures, 40 percent reported spending on new equipment, 25 percent acquired vehicles, and 17 percent improved or expanded facilities. Twelve percent of owners spent money on new fixtures and furniture and 7 percent acquired new buildings or land for expansion. Twenty-three percent (seasonally adjusted) plan capital outlays in the next few months.
A net negative 11 percent of all owners (seasonally adjusted) reported higher nominal sales in the past three months, unchanged from December. The net share of owners expecting higher real sales volumes declined 12 points to a net negative 16 percent.
The net share of owners reporting inventory gains increased two points to 0 percent. Not seasonally adjusted, 13 percent reported increases in stocks and 19 percent reported reductions, up four points. A net negative 4 percent of owners viewed current inventory stocks as “too low” in January, up one point from December. By industry, shortages were reported most frequently in the wholesale (18 percent), retail (12 percent), and finance (11 percent) sectors. Shortages were reported least frequently in the professional services (2 percent) and construction (4 percent) sectors. A net negative 3 percent of owners plan inventory investment in the coming months, up two points from December.
The net percent of owners raising average selling prices declined three points from December to a net 22 percent seasonally adjusted. Fifteen percent of owners reported lower selling prices, the highest since August 2020. Twenty percent of owners reported that inflation was their single most important problem in operating their business, down three points from last month and one point behind labor quality as the top problem.
Unadjusted, 15 percent reported lower average selling prices and 36 percent reported higher average prices. Price hikes were the most frequent in wholesale (47 percent higher, 7 percent lower), retail (43 percent higher, 11 percent lower), services (43 percent higher, 6 percent lower), finance (42 percent higher, 14 percent lower), and construction (36 percent higher, 9 percent lower). Seasonally adjusted, a net 33 percent plan price hikes.
The frequency of reports of positive profit trends was a net negative 30 percent, five points worse than in December and a very poor reading, NFIB said. Among owners reporting lower profits, 32 percent blamed weaker sales, 15 percent blamed the rise in the cost of materials, 15 percent cited usual seasonal change, and 11 percent cited labor costs. For owners reporting higher profits, 49 percent credited sales volumes, 24 percent cited usual seasonal change, and 9 percent cited higher selling prices.
Three percent of owners reported that all their borrowing needs were not satisfied. Twenty-six percent reported all credit needs met and 62 percent said they were not interested in a loan.
A net 6 percent reported their last loan was harder to get than in previous attempts. Five percent of owners reported that financing was their top business problem. A net 18 percent of owners reported paying a higher rate on their most recent loan, down two points from December.