Small business confidence in the United States has plummeted to its lowest level in over 11 years, according to a recent survey by the National Federation of Independent Business (NFIB). The survey, conducted in March, revealed a reading of 88.5, a decrease of nearly a point from February and the lowest since December 2012. The primary concern among respondents was the persistent issue of inflation.
Inflation Remains a Major Concern for Small Businesses
Despite other data suggesting a receding inflation rate, a quarter of all respondents in the NFIB survey reported that rising costs were their biggest problem. “Small business optimism has reached the lowest level since 2012 as owners continue to manage numerous economic headwinds,” said NFIB Chief Economist Bill Dunkelberg. “Inflation has once again been reported as the top business problem on Main Street and the labor market has only eased slightly.”
Specifically, inflation and higher input and labor costs were cited as the most pressing issues by a quarter of all respondents. A net 28% reported raising average selling prices for the month, and 33% planned additional price hikes, according to seasonally adjusted data.
Escalating Costs and Compensation
As part of the escalating costs, a net 38% of respondents said they raised compensation, up 3 percentage points from the February reading that was the lowest since May 2021. The Labor Department reported that average hourly earnings rose 0.3% in March and 4.1% from a year ago.
Despite these concerns, other indicators suggest that inflation, while not eradicated, is at least receding. A Commerce Department measurement of personal consumption expenditures prices put the annual inflation rate at 2.5% in February. The consumer price index, a more widely watched figure by the public, is expected to show a 3.4% headline rate and 3.7% on core. Fed policymakers target 2% annual inflation.
Future Inflation Expectations
Inflation expectations have been fairly well-anchored in recent months. A New York Fed survey on Monday showed respondents for March expected a 3% rate over the next year, unchanged from February. The three-year outlook rose slightly but the five-year expectation decreased.
However, the survey did show a significant increase in the expectations for rent increases — by 8.7% over the next year, a 2.6 percentage point surge from February. Declining shelter inflation is at the core of the Fed’s thesis that inflation will continue to ebb toward the central bank’s 2% target, allowing for interest rate cuts later in the year.
