NFIB: Small Business Owners Reporting Inflation as Biggest Problem, Highest Concern in 40 Years

The National Federation of Independent Business (NFIB) recently shared findings from its Small Business Optimism Index, which found that 22 percent of small business owners reported that inflation was the most important problem they dealt with in operating their business. According to the report, price-raising activities reached levels not seen since the early 1980s, when prices were rising at double digit rates.

The report looked at data from the end of 2021, and the 22 percent of respondents answering that inflation was their most important problem was a 20-point increase from the beginning of last year. The Optimism Index itself increased in December to 98.9, up 0.5 points from the previous month.

Image via NFIB

Another key finding was that the number of small business owners who expect better business conditions over the next six months increased three points, to a net negative 35 percent. NFIB says owners remain pessimistic about future economic conditions, with this indicator decreasing by 23 points over the previous six months. Additionally, 49 percent of business owners reported job openings that could not be filled. That number increased by a point month over month.

NFIB Chief Economist Bill Dunkelberg commented, “Small businesses unfortunately saw a disappointing December jobs report, with staffing issues continuing to impact their ability to be fully productive. Inflation is at the highest level since the 1980s and is having an overwhelming impact on owners’ ability to manage their businesses.”

Forty-eight percent of business owners said they raised compensation, which was a month-over-month increase and a 48-year record high, according to NFIB. Thirty-two percent said they planned to raise compensation in the following three months. Thirteen percent said labor costs are their top business problem, which is also a 48-year record high. Twenty-five percent said labor quality was their top business problem.

Business owners reporting inventory changes increased four points to a net seven percent, while 36 percent reported that supply chain disruptions had a "significant" impact on their business. An additional 30 percent reported a "moderate" impact, and 21 percent reported a "mild" impact. Just 11 percent reported no impact.

A net nine percent of business owners said they viewed current inventory stocks as "too low," down six points from the previous month. Eight percent said they plan inventory investment in the coming months. That number was down two points, but five points above the 48-year historical average.

Here’s the breakdown of the Optimism Index by component:

"The outlook for the economy near-term must be pretty good as the demand for labor and for inventories is at historic high levels, obviously needed to take advantage of current sales opportunities," NFIB says in the report. "But the outlook for the economy in the first half of 2022 is quite negative, in part due to the policy confusion in Washington and in 50 states over Covid and potential tax increases."

Just one percent of all business owners polled reported higher nominal sales in the three months prior. Three percent said they expect higher sales volumes.