Inflation Concerns Continue to Ease

Apr 11, 2023

In an earlier post, we mentioned the record-low reading in the percentage of small businesses perceiving now as a good time to expand.  As for what these firms perceive to be their most pressing issues, inflation continues to be the single most prevalent answer at 24%, albeit the gap has narrowed dramatically.  Quality of labor is now only a single percentage point behind inflation at 23%, and when combined with cost of labor, the two issues account for over a third of small businesses’ biggest problems.  From a historical standpoint, inflation, quality of labor, and cost of labor all remain elevated and account for a massive share (58%) of the most pressing issues facing small businesses.

The four percentage point drop month over month in the percentage of respondents reporting inflation as their biggest issue is the largest decline since January when it fell six percentage points. As a result, the category is only down to the lowest level since January 2022 which remains well outside the range of pre-pandemic readings. In other words, inflation has improved compared to last July when it was top of mind for 37% of small businesses, but it is still nowhere near a non-issue.

Picking up some of those losses has been government-related concerns.  This series has historically held a political bias in which under Republican administrations, small businesses are less concerned with red tape and taxes and vice versa during Democratic administrations. With the surge in inflation concerns during President Biden’s tenure, this index has remained historically low but has begun to rise more recently as inflation has improved.

Another area to see a rise in firms reporting it as their biggest problem has been poor sales.  While the reading is far from flying, it has begun trending higher now accounting for 5% of responses in March.  That pairs with the index for actual reported sales changes which have remained firmly negative for nearly a year now.  When poor sales turn into the biggest problem for a small business, you know times are really tough, which is why we’ll be watching this reading closely in the months ahead.  For now, the reading is still extremely low, which is a good thing.

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Small Business Outlook Cratering

Apr 11, 2023

Small business optimism continued to decline in March with the headline index from the NFIB falling from 90.9 down to 90.1.  That headline reading was actually better than the consensus forecast of 89.3, but it was still in the bottom decile of the indicator’s historical range dating back to 1986.

Looking across individual categories, breadth was weak in the report with only three indices moving higher month over month, three going unchanged, and all the others falling.  As with the headline number, many categories are historically depressed in the bottom decile of readings, including some record lows.

That record low was in the percentage of respondents reporting now as a good time to expand.  Only 2% reported now as a good time to expand, down 4 points month over month.  While the reading has been at the low end of its historical range for much of the past year, March’s reading matched the historical low from March 2009.

Given the small business outlook for the economy has soured, fewer firms are reporting plans to increase hiring or capital expenditures.  In fact, the index for capex plans fell to 20, which alongside March 2021, is the lowest reading since the spring of 2020.  Similarly, hiring plans are at new lows for the post-pandemic period.

One factor likely impacting business plans has been financial conditions.  The most pronounced decline of any category last month was a record 4-point decline in the availability of loans.  While the reading has been rolling over for some time, that drop leaves the index at the lowest level since December 2012.

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Our daily research consists of a pre-market note, a post-market note, and our Chart of the Day. These three daily reports are supplemented with additional research pieces covering ETFs and asset allocation trends, global macro analysis, earnings and conference call analysis, market breadth and internals, economic indicator databases, growth and dividend income stock baskets, and unique interactive trading tools.

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