Small Business Confidence Still Lowest in 40 years

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Small Business Confidence Still Lowest in 40 years

Business confidence went up in July but remained near a historic low as most business owners have reported in 1979 that rising prices were their single most important problem, according to a new survey released on Tuesday.

The National Federation of Independent BusinessesFederation of Independent Businesses, a Tennessee-based association of small business owners, said its Small Business Optimism Index climbed to 89.9 last month, a 0.4 percentage point increase from June. That marks the seventh month of readings below the 48 year average of 98.

The outlook is dark for many small businesses but starting to improve, with a percentage of owners expecting better business conditions over the next month, climbing nine points from June's record low. Expectations for better business conditions have deteriorated consistently from January to June.

Bill Dunkelberg, the chief economist at NFIB, said that the uncertainty in the small business sector is escalating as owners continue to manage historic inflation, labor shortages and supply chain disruptions. Owners will continue to manage their businesses into a very uncertain future as we move into the second half of 2022. In July, the percentage of small business owners who raised the price of goods to offset inflation decreased seven points to 56%. The net percent still raising prices is inflationary and the decline is significant, the survey said.

The Federal Reserve has moved at the most rapid pace in decades to raise interest rates to match consumer demand, raising fears on Wall Street of a potential recession or even a slowdown in growth. Policymakers approved two consecutive 75 basis point rate hikes in June and July and suggested that another increase of that magnitude is on the table in September.

Nearly half of owners 49% reported that they could not fill open positions, despite the fact that they struggled to onboard new employees. The Labor Department reported last week that there were 10.7 million open jobs at the end of June. The highest number of available jobs was in February 2020, and the highest number on record was 7.7 million, before the pandemic began in February 2020.

The Fed is trying to cool the job market without causing unemployment to increase too much.

Small businesses raised wages because of a worker shortage, 48% said they increased pay in June, while 25% of owners plan to increase compensation in the next three months. In June, 9% of business owners cited labor costs as the biggest problem facing their business, while 21% said it was labor quality.