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Economy in Brief

Small Business Expectations Hit All-time Low
by Sandy Batten  July 12, 2022

• NFIB Optimism Index fell in June to 89.5, its lowest reading since early 2013.

• Index of expectations for the next six months fell to a series low.

• Each of the 10 index components fell.

• Inflation is the most major concern, highest level of concern since late 1980.

The NFIB Small Business Optimism Index declined to 89.5 in June from 93.1 in May, according to the May 2022 Small Business Economic Trends survey conducted by the National Federation of Independent Business. This was the lowest reading on the index since January 2013. Each of the index's ten components fell in June. The NFIB Uncertainty Index dropped to 55 in June, the lowest level since November 2011, from 59 in May.

The outlook for business conditions in the next six months fell to a series low in June. The net balance of respondents expecting the economy to improve over the next six months dropped to -61% in June from -54% in May and -12% in June 2021. Expected real sales fell to a net -28 in June from -15%. Plans to make capital outlays slipped to 23% from declined to 25% in May. Plans to expand the business rebounded declined three points to a net 3% in June. Plans to make capital outlays fell to a net 23% in June, the lowest reading since March 2021, from 25% in May. The net percentage expecting profits to rise slumped to -25% in June, the lowest reading since August 2020, from -24% in May.

Employment conditions softened slightly in June but remained historically very tight. Small businesses are still having difficulty finding qualified employees to meet their demand and managing supply chain disruptions. The net balance with job openings not able to be filled edged down to 50% in June from 51% in May, but the May figure was a series high. And the percentage of firms indicating few or no qualified job applicants slipped to 60% in June from 61% in May, but again just off the series high of 62% reached last September. A net 19% of firms plan to increase employment, down from 26% in May.

Upward pressure continues to be placed on wages. A net 48% of firms are raising worker compensation, down slightly from 49% in May and just off the series high of 50% reached in January. A net 28% of firms expected to raise wages in the next three months, up from 25% in May. Accordingly, pressure on inflation also remains intense. A net 69% of firms are raising prices, down from 72% in May but that was a series high. A net 44% expect to raise prices in the next three months, down from 44% in May. The series high for this series was 54% reached last November.

Regarding important issues for small businesses, inflation concerns continued to be leader with 34% of firms indicating it as their single most important problem, the highest reading since Q4 1980 (the index was quarterly until 1986) and up from 28% in May. The quality of labor was the major problem faced by 23% of respondents, the same as in April and May.

Roughly 24 million small businesses exist in the U.S. and they create 80% of all new jobs. The typical NFIB member employs 10 people and reports gross sales of about $500,000 a year. The NFIB figures can be found in Haver's SURVEYS database.

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