Inflation Remains Top Problem for Main Street

Small Business Optimism Index Shows Main Street Still Pessimistic on Future of Economy

WASHINGTON, D.C. (July 9, 2024) – The NFIB Small Business Optimism Index reached the highest reading of the year in June at 91.5, a one-point increase from last month. The last time the index was higher was in December of 2023 when it reached 91.9. Even so, this marks the 30th month below the historical average of 98. Inflation is still the top small business issue, with 21% of owners reporting it as their single most important problem in operating their business, down one point from May.

“Main Street remains pessimistic about the economy for the balance of the year,” said NFIB Chief Economist Bill Dunkelberg. “Increasing compensation costs has led to higher prices all around. Meanwhile, no relief from inflation is in sight for small business owners as they prepare for the uncertain months ahead.”

Key findings include:

• Seasonally adjusted, a net 22% plan to raise compensation in the next three months, up four points from May.
• A net negative 2% (seasonally adjusted) of owners viewed current inventory stocks as “too low” in June, up six points from May’s lowest reading since October 1981.
• A net negative 2% (seasonally adjusted) plan inventory investment in the coming months, up four points from May.
• Fifty-two percent reported capital outlays in the last six months, down six points from May and the lowest reading since August 2022.
• Four percent of owners reported that all their borrowing needs were not satisfied, up one point from May and the highest reading since August 2022.

As reported in NFIB’s monthly jobs report, a seasonally adjusted 37% of all small business owners reported jobs openings they could not fill in their current period, down five points from May. Of the 60% of owners hiring or trying to hire in June, 85% reported few or no qualified applicants for the positions they were trying to fill.

Fifty-two percent of owners reported capital outlays in the last six months, down six points from May and the lowest reading since August 2022. Of those making expenditures, 35% reported spending on new equipment, 22% acquired vehicles, and 14% improved or expanded facilities. Ten percent spent money on new fixtures and furniture and 5% acquired new buildings or land for expansion. Twenty-three percent (seasonally adjusted) plan capital outlays in the next six months, unchanged from May.

A net negative 12% of all owners (seasonally adjusted) reported higher nominal sales in the past three months. The net percent of owners expecting higher real sales volumes was unchanged at a net negative 13% (seasonally adjusted).

The net percent of owners reporting inventory gains rose four points to a net negative 3%. Not seasonally adjusted, 17% reported increases in stocks and 16% reported reductions.

A net negative 2% (seasonally adjusted) of owners viewed current inventory stocks as “too low” in June, up six points from May, which was the lowest reading since October 1981. A net negative 2% (seasonally adjusted) of owners plan inventory investment in the coming months, up four points from May.

The net percent of owners raising average selling prices rose two points from May to a net 27% seasonally adjusted. Twenty-one percent of owners reported that inflation was their single most important problem in operating their business. Unadjusted, 12% reported lower average selling prices and 41% reported higher average prices.

Price hikes were the most frequent in the construction (55% higher, 5% lower), retail (49% higher, 8% lower), wholesale (46% higher, 17% lower), finance (38% higher, 7% lower), and services (37% higher, 9% lower) sectors. Seasonally adjusted, a net 26% plan price hikes in June.

Seasonally adjusted, a net 38% reported raising compensation, up one point from May. A seasonally adjusted net 22% plan to raise compensation in the next three months, up four points from May. Eleven percent of owners cited labor costs as their top business problem, up one point from May and only two points below the highest reading of 13% reached in December 2021. Nineteen percent said that labor quality was their top business problem, remaining behind inflation as the number one issue.

The frequency of reports of positive profit trends was a net negative 29% (seasonally adjusted), one point better than May, but still a very poor reading. Among owners reporting lower profits, 34% blamed weaker sales, 17% blamed the rise in the cost of materials, 12% cited labor costs, and 9% cited lower selling prices. For owners reporting higher profits, 37% credited sales volumes, 27% cited usual seasonal change, and 20% cited higher selling prices.

Four percent of owners reported that all their borrowing needs were not satisfied. Twenty-four percent reported all credit needs met and 61% said they were not interested in a loan. A net 7% reported their last loan was harder to get than in previous attempts.

Four percent of owners reported that financing was their top business problem in June, down two points from May.

The NFIB Research Center has collected Small Business Economic Trends data with quarterly surveys since the fourth quarter of 1973 and monthly surveys since 1986. Survey respondents are randomly drawn from NFIB’s membership. The report is released on the second Tuesday of each month. This survey was conducted in June 2024.