Optimism of small businesses falls ahead of the December holidays

TOPEKA, Kansas (WIBW) – The National Federation of Independent Business reported that optimism for small businesses fell in December, marking one year in which optimism fell below the 49-year average.

The National Federation of Independent Business says its small business optimism index fell 2.1 points in December, bringing the total to 89.8. This is the 12th consecutive month below the 49-year average of 98.

The NFIB noted that owners who expect better business conditions in the next six months fell 8 points from November to a net 51%. It also stated that inflation remains the single most important business issue with 32% of owners reporting it as their biggest problem.

“In general, small business owners are not optimistic about 2023 as sales and business conditions are expected to deteriorate,” said NFIB Chief Economist Bill Dunkelberg. “The owners are dealing with several economic uncertainties and ongoing inflation and are continuing to make business and operational changes to compensate.”

While state data is not available, NFIB State Director Dan Murray described his own challenges of owning and running a small business in the Sunflower State.

“In the face of escalating prices, massive labor shortages and a looming recession, there’s no question why more than half of small business owners are pessimistic about future business conditions. Let’s hope lawmakers can work together to stabilize our economic recovery and provide relief to Main Street.”

The NFIB stated that key findings include:

  • 41% of owners reported vacancies that were difficult to fill – down three points from November, but historically very high.
  • The net percentage of owners raising average sales prices decreased by eight points to a net 43%, a historic high.
  • The net percentage of owners who expect actual sales to be higher worsened two points from November to a net negative 10%.

The Federation’s monthly employment report showed that employers’ plans to create jobs remain high, with a net 17% planning to create new jobs in the next three months. Overall, it said 55% of employers reported hiring or trying to hire in December, while 93% reported few or no qualified candidates for the positions they needed to fill.

The report also found that 55% of owners reported capital expenditure in the last 6 months. Of those who made expenditures, 37% said they spent on new equipment, 22% bought new vehicles, and 12% spent money on new equipment and furniture. Meanwhile, 11% improved or expanded facilities and 4% purchased a new building or land for expansion. Finally, 23% plan capital expenditures in the next few months.

According to the report, a net negative 8% of owners reported higher nominal sales over the past three months, down one point from November. It said the next percentage of owners expecting higher actual sales volumes fell two points to a net negative 10%.

The federation reported that the net percentage of owners reporting an increase in inventory also fell five points to a net 0%. It said 15% reported an increase in inventory and 16% reported a decrease. Meanwhile, 23% said supply chain disruptions had a significant impact on their business, while another 30% reported a moderate impact and 32% reported a slight impact. Only 13% reported no impact from recent supply chain disruptions.

The report states that a net 1% of owners viewed current inventory as “too low” in December, up three points from November – a good balance overall. By industry, it is stated that shortages are most often recorded in production, 13%, followed by retail, 12%, transportation, 12% and agriculture, 11%. A net negative 4% of owners are said to plan to invest in stocks in the coming months.

According to the Federation, the net percentage of owners raising average sales prices fell eight points from November to a net 43% – the lowest level since May 2021. Unadjusted, it said 12% reported lower average sales prices and 51% reported higher average selling price. They say that price increases were most common in wholesale, manufacturing, construction and transport. It also said that a net 24% of owners still plan to increase prices, which is a drop of 10 points compared to November.

Seasonally adjusted, the report found that a net 44% of owners reported a pay increase. A net 27% plan to increase wages in the next three months, which is a drop of one point compared to November. Meanwhile, 8% cited labor costs as their top business problem, and 23% said quality of work was their top concern.

The NFIB noted that the frequency of reports of positive earnings trends was a net negative 30%, down eight points from November. Among owners who reported lower profits, 30% blamed rising material costs, 24% lower sales, 12% cited labor costs, 9% cited lower prices, 8% cited the usual change in season, and 3% cited increasing taxes or regulatory costs. For owners who reported higher profits, 43% attributed sales volume, 18% cited higher prices, and 17% cited the usual seasonal change.

Finally, the Federation reported that 2% of owners indicated that all of their borrowing needs were not met. It said that 25% stated that all credit needs were met and 62% said they were not interested in a loan. However, interest rates on loans rose significantly from an average of 5% in January 2022 to 7.7% in December.

To view the full report, click HERE.

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