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- According to the NFIB’s Small Business Optimism Index, small business owners’ outlook has fallen to its lowest in six months when inflation was at its peak during the pandemic.
- A major concern for small business owners is inflation, which affects how much money they spend on materials. At the same time, as profits and nominal sales are declining, more small business owners are delaying price increases.
- Other concerns for small business owners include persistent supply chain issues, struggling to fill open positions, and finding quality talent.
Last week, the National Federation of Independent Business (NFIB) released the results of its Small Business Optimism Index for December 2022. After all, small business owners don’t have much hope for the near future. In fact, they haven’t been this pessimistic since June 2022, when inflation he peaked at 9.1%.
In an environment where economic indicators look positive, this is a bit confusing. Inflation is trending downward. Unemployment is low.
So why are small business owners pessimistic? It’s the confluence of factors that Q.ai is here to help you navigate.
Inflation is falling, but it’s still a problem
Annual inflation continues its downward trend, falling to 6.5% in December 2022. It’s reassuring that we’re heading in the right direction, but 6.5% inflation is still incredibly high.
An NFIB survey found that 32% of business owners said inflation was the biggest problem hindering their business. Of those companies reporting lower profits, 30% cited rising material costs as the main factor squeezing earnings.
Nominal sales fall ahead of further interest rate hikes
Why don’t you raise prices when inflation is high? Part of the problem is that small business owners have seen sales plummet over the past few months.
Overall, the frequency of positive earnings trends decreased to 30%, down 8% from November. Among companies with declining profits, after inflation, he said declining sales was the most common reason.
Some of this is expected. Part of the Fed’s goal in raising rates was to curb consumer discretionary spending. Overall, customers appear to be spending less at small businesses, whether people decide it’s not worth the price or are forced to divert resources to buy necessities like rent and food. am.
With inflation still stubbornly high, the Fed plans further rate hikes into 2023. These growth rates could impact consumer spending at small businesses in the coming months.
Supply chain disruption continues
Running your business like a well-oiled machine means having a reliable supply chain. Over the past few years, supply chain disruptions have caused delays and imbalanced supply and demand across the industry.
Small business owners are not spared. Only 13% of small business owners said the current environment has no impact on their supply chains. The remaining respondents fell into the following categories:
- 23% report having a significant impact on their business.
- 30% report moderate business impact.
- 32% reported a mild business impact.
Difficult to fill vacant positions
A tight labor market is good for workers, but hard for businesses. Running a functional business requires reliable and competent staff. With key positions vacant, you run the risk of overburdening current employees as they try to pick up the slack.
Note that labor costs are not necessarily an issue here. Wages rose during the pandemic, but growth has not kept up with inflation and is now trending downward. Even at the peak of economic growth, labor costs were not a significant driver of inflation to begin with.
In fact, only 8% of small business owners reported that labor costs were the biggest problem for their business. A much higher 23% said labor quality, not cost, was the biggest issue impacting bottom line, and 41% reported problems filling vacancies.
Only 27% of employers plan to raise wages in the next three months, even with the problem of filling vacancies. This is him down 1% from November, which may not bode well for future wage increases.
What a bleak outlook means for Main Street
Before the pandemic hit, small businesses created about two-thirds of the job opportunities in the US job market. They also contributed his 44% of the country’s economic activity.
If small businesses start moving south in large numbers, it could have a negative impact on the American job market. It can also have a significant impact on the local economy.
However, the NFIB’s index is based on the sentiments of small business owners. Some of these businesses may operate in the financial sector, but respondents are generally not economists. Their struggle deserves great attention, but their anxiety about the future may or may not be worth it.
What a pessimistic outlook means for Wall Street
Even if small businesses were to shake en masse, it might not have an immediate impact on the stock market. Less than 1% of US companies are publicly traded. Not all private companies are SMEs, but there is considerable overlap between SMEs and the private sector.
The closure of the Jaws Corner shop may not have an immediate effect on the stock market, but the closure of enough small businesses could hurt the local economy. It can affect everything from the job market to consumer spending.
These factors can affect consumer spending at publicly traded companies, which can adversely affect stock markets. Investors may also become more paranoid when it comes to riskier investments like stocks, which could be a further drag.
Conclusion
Much of our economy is lean. Economic indicators aren’t screaming ‘recession’ at this point, but with so many unpredictable upheavals over the past few years, the conditions we’re living in feel strange and uncomfortable.
Small business owner pessimism is never a good sign, but it’s not always a crystal ball that accurately predicts the future.
During these uncertain times, you may worry about the future of your investment. Times of economic upheaval should already be factored into your long-term investment plans, but there are other things you can do to strengthen your investments, such as using inflation kits and choosing portfolio protection.
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