Small businesses continued to feel pessimistic about the state of the U.S. economy in December, reflecting fears over the persistent worker shortage and chronic inflation.
The National Federation of Independent Businesses (NFIB), a Tennessee-based association of small business owners, said its Small Business Optimism Index rose slightly to 91.9 last month, a 1.3 percentage point decrease from November. Despite the increase, that marks the 24th straight month of readings below the 48-year average of 98.
“Small business owners remain very pessimistic about economic prospects this year,” said Bill Dunkelberg, NFIB chief economist. “Inflation and labor quality have consistently been a tough complication for small business owners, and they are not convinced that it will get better in 2024.”
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Inflation surpassed worker quality as the biggest threat posed to small businesses in December. About 23% of small business owners cited price increases as the single most important problem in operating their business, up one point from the previous month.
While inflation has fallen considerably from a peak of 9.1%, it remains well above the Federal Reserve’s 2% target. As a result, more than one-third – about 36% – of small business owners reported raising prices in order to offset the sting of high inflation. Just 15% reported lower average selling prices.
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Another 20% of owners said that labor quality was their biggest problem as low unemployment and rapid wage increases made it harder for the owners of these firms to compete with big companies and hire employees. About 36% of small business workers reported raising compensation last month, while 29% plan to increase wages in the next three months.
About 9% of owners cited labor costs as the top business problem.
The NFIB survey comes just two days before the release of new consumer price index data, which is expected to show the growing stickiness of inflation. Economists surveyed by Refinitiv expect that inflation rose 0.2% from the previous month and 3.3% from the previous year.
More concerning is that economists expect core inflation – which excludes the more volatile measurements of food and energy – to increase 0.2% for the month and 3.8% from the previous year.