Inflation Concerns Peak

The NFIB released the results of its May survey of small businesses this morning, and even though the report showed the outlook for business conditions collapsed to a record low, there were other at least partially promising signs under the hood. Primarily, the percentage of respondents reporting inflation as their biggest concern finally appears to have peaked. After reaching a record high of almost a third of responses in April, a still-elevated but improved, 28% of small businesses reported inflation as their biggest concern. The decline in concerns over inflation ranked as the largest decline of any reported problem, but conversely, “other” saw the largest increase as it rose 5 percentage points month over month. Now at 11%, that reading is near some of the highest levels on record going back to 2008 (this response does not have as long dated of a history as the others which go back to 1986)

Inflation Problems

While the percentage of respondents reporting inflation as their biggest concern has peaked for the time being, that is not to say fewer businesses are concerned about rising costs.  Behind the increase in “Other”, the next biggest month-over-month increase was cost of labor which rose four percentage points.  That brings it to the highest level since December on its own as well as on a combined basis with quality of labor (which was unchanged month over month).

NFIB most important problems

Inflation was not the only reading to fall month over month as fewer respondents also reported taxes as their biggest concern.  Alongside another government-related reading, government requirements and red tape, the combined reading is at a record low.

Government Red Tape

Government-related indices were not alone with record low readings.  0% of respondents indicated that competition from big businesses was their most pressing issue as well while poor sales and financials & interest rates are just off record lows of their own. Click here to learn more about Bespoke’s premium stock market research service.

NFIB mot important small business problems

Small Business Problems

As we noted in an earlier post, inflation appears to be a major driver as to why small businesses are reporting historic pessimism for the US economy.  Looking across the most important problems reported by small businesses in the NFIB’s monthly survey, inflation takes the cake as the biggest concern.  Nearly a third of responding firms reported higher prices as their biggest problem; the highest level on record in data going back to 1986. That has now surpassed the prior series high of 20% in mid-2008.

Inflation problem

Given inflation has stolen such a large share of small business worries, several other problems are now at or near record lows.  For example, no firms reported competition from big businesses as the biggest issue.  Government requirements and red tape are similarly at a record low after a one percentage point decline month over month.  Taxes, poor sales, and financial and interest rates are also not a huge concern according to the survey.

Small Business Problems

With both government-related concerns dropping yet again, the combined reading between the percentage of respondents reporting taxes and government red tape as their biggest issues hit a new record low of 22%.  The past few Presidential administrations have seen this reading more elevated and rising with Democrat presidents while Republican Presidents have coincided with lower readings.  The current administration is now an exception with big declines as inflation concerns have come front and center.

Government Regulation, small business

The rise of inflation concerns have also resulted in a pullback in the share of respondents reporting cost or quality of labor as the biggest issue. While the combined reading rose one point in April thanks to the quality of labor, the combined reading is well off the peak of 40% from last September. Additionally, for the second month in a row and for the first time in roughly a decade, inflation continues to be the bigger concern.   Click here to learn more about Bespoke’s premium stock market research service.