US Small-Business Confidence Hits 11-Year Low Amid Rising Inflation Concerns
Small-Business Optimism Index Drops to Lowest Level Since 2012
In March, U.S. small-business confidence declined to its lowest point in over 11 years, driven by mounting worries about inflation. The National Federation of Independent Business (NFIB) reported that its Small Business Optimism Index fell by 0.9 points to 88.5 last month, marking the lowest level since December 2012. This marks the 27th consecutive month that the index has remained below the 50-year average of 98.
Increased Inflation Pressures Small Business Owners
According to the NFIB survey, a quarter of business owners identified inflation as their most significant operational challenge. This concern reflects the escalating costs of inputs and labor, with a 2-point increase from February. Additionally, there was a notable uptick in the number of businesses raising their average selling prices, rising by 7 points from the previous month.
Rising Consumer Prices Impact Various Sectors
The surge in consumer prices during the first two months of the year has had repercussions across several sectors, including finance, retail, construction, wholesale, and transportation. Notably, businesses are also raising compensation levels despite a cooling demand for labor.
Labor Shortages Plague Specific Industries
While hiring plans among small businesses dropped to their lowest since May 2020, industries like transportation, construction, and services are grappling with severe shortages of both skilled and unskilled workers. The overall economy added 303,000 jobs in March, with the unemployment rate declining to 3.8% from 3.9% in February.
Federal Reserve Grapples with Inflation Challenges
Inflation continues to surpass the Federal Reserve’s 2% target, prompting expectations of interest rate cuts later this year. The Fed has maintained its policy rate between 5.25% and 5.50% since July and has raised the benchmark overnight interest rate by 525 basis points since March 2022.
