Small Business Optimism Index Falls Amid Labor Shortages and Inflation

Summary

  • The National Federation of Independent Business (NFIB) has reported a slight drop in its small business optimism index, which indicates less optimism among smaller businesses in the country.
  • This marks a continuation of a trend that has seen the index fall below its half-century average for 23 consecutive months.
  • The decline in optimism is attributed to issues with labor availability and ongoing struggles with inflation, with a third of businesses reporting reduced profits in November.
  • While businesses continue to struggle with hiring, fewer are reporting unqualified applicants, marking a slight shift in job market dynamics.
  • The report also reveals some impact on businesses from the Federal Reserve’s approaching end to its interest rate hikes.

November Report

It was reported by the National Federation of Independent Business (NFIB) that the optimism index for small businesses dipped slightly to 90.6 in November, from 90.7 the previous month. This marks the 23rd consecutive month that the index has fallen below its 50-year average score of 98.

Challenges Facing Businesses

Since reaching a high point in July this year, optimism has decreased as businesses face challenges in finding labor and grappling with inflation. According to the report, an unchanged net negative 32% of businesses reported increased profits for November.

Hiring Difficulties

Struggles continue in filling vacancies, however, the ratio of businesses citing a lack of qualified applications has fallen to a two-year low of 50%. Furthermore, fewer owners have reported trouble filling positions, the number fell three points to 40%. However, despite the drop, the pace of hiring remains sluggish.

The Effect on NFIB Firms

The report revealed, “From March, with greater firms cutting jobs than adding, the net percentage of NFIB companies increasing employment has been negative. Open roles are high, but the economic boom has not brought a wave of new workers to fill these vacancies.”

Impact of Federal Reserve Policies

As the Federal Reserve approaches the end of its interest rate increase cycle, 25% of owners have said they paid a higher rate on their most recent loan, a decline of three points from October. The report also highlighted that widespread economic uncertainty has affected the business condition outlook.

Future Outlook

In November, the segment predicting better business conditions over the next six months rose by one point to a net negative 42%.

Persisting economic uncertainties and interest rate policies have the potential to influence forex or asset trading, specifically those dependent on small business growth and sentiment.

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