Small business confidence rose slightly in July but remained near a historic low as fears over white-hot inflation persisted, with the most business owners since 1979 reporting that rising prices were their single most important problem, according to a new survey published on Tuesday.
The National Federation of Independent Businesses, a Tennessee-based association of small business owners, said its Small Business Optimism Index climbed to 89.9 last month, a 0.4 percentage point increase from June. That marks the seventh straight month of readings below the 48-year average of 98.
The outlook is dark for many small businesses but starting to improve, with the percentage of owners expecting better business conditions over the next month, climbing nine points from June's record low. Expectations for better business conditions have deteriorated consecutively from January to June.
According to the survey, the biggest problem is inflation: despite the improvement in business condition expectations, 37% of small business owners reported that rising prices are their single most important problem in operating their business, the highest reading since 1979.
"The uncertainty in the small business sector is climbing again as owners continue to manage historic inflation, labor shortages and supply chain disruptions," said Bill Dunkelberg, the chief economist at NFIB. "As we move into the second half of 2022, owners will continue to manage their businesses into a very uncertain future."
In a possibly reassuring sign, the percentage of small business owners raising the price of goods to offset inflation decreased seven points in July to 56%. Still, while the decline is "significant, the net percent still raising prices is inflationary," the survey said.
Scorching-hot inflation has forced the Federal Reserve to move at the most rapid pace in decades to raise interest rates to tame consumer demand, raising fears on Wall Street of a slowdown in growth or even a potential recession. Policymakers approved two consecutive 75-basis point rate hikes in June and July and have suggested that another increase of that magnitude is on the table in September.
Businesses also struggled to onboard new employees, with nearly half of owners (49%) reporting that they could not fill open jobs. The Labor Department reported last week that there were 10.7 million open jobs at the end of June. The number of available jobs has topped 10 million for eight consecutive months; before the pandemic began in February 2020, the highest on record was 7.7 million.
The Fed is trying to cool the job market without causing unemployment to increase too much.
Faced with a worker shortage, small businesses have responded by raising wages: 48% of respondents said they increased pay in June, while 25% of owners plan to increase compensation in the next three months. In all, 9% of business owners have cited labor costs as the biggest problem facing their business — up from June — while 21% said it was labor quality.