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Inflation Gives Small Business Owners the Jitters

Inflation is every bit a weight on small businesses as it is the everyday American.

The most recent report from the National Federation of Independent Business (NFIB) shows that inflation is the single-worst problem facing small businesses right now.

Consumer and producer prices alike are still expanding at a red-hot rate. So it’s vital to understand both how inflation is weighing on America’s small companies, and why it has them increasingly pessimistic about the business environment for the next few months.

To do that, let’s dig into the NFIB’s research.

NFIB: Small Business Optimism Is Low …

The headline data point of the NFIB’s May report was another decline in its NFIB Small Business Optimism Index. This index measures small business owners’ optimism across a number of components, including their plans to increase employment, their expectations for economic improvement, their current inventory and more.

Specifically, the index declined 0.1 points to 93.1 — its fifth consecutive month below 98, which is the average index reading over the past 48 years. Worse: Owners expecting better business conditions over the next six months were off by 4 percentage points, to a net negative 45%. That’s the lowest level the NFIB’s survey has ever recorded, and the fourth consecutive month of declines in optimism.

… In Large Part Because Inflation Is High

The good news? The proportion of small business owners reporting that inflation was their single most important problem in operating their business was down in May, by 4 percentage points from April.

The bad news? That still left 28% of owners listing inflation as their top issue, making it the largest problem among those surveyed. (Behind that was labor quality, at 23%.)

Naturally, many small business owners have had to fight inflation by raising their own prices. And in fact, on a seasonally adjusted basis, the percentage of owners raising their average selling prices was 72%. That’s 32 points higher than a year ago to mark the highest reading in the survey’s nearly half-century of history.

Getting a little more granular, per NFIB:

“Price hikes were the most frequent in wholesale (80% higher, 4% lower), manufacturing (79% higher, 1% lower), retail trades (78% higher, 2% lower) and construction (77% higher, 2% lower).”

“Inflation continues to outpace compensation, which has reduced real incomes across the nation,” says NFIB Chief Economist Bill Dunkelberg. “Small business owners remain very pessimistic about the second half of the year as supply chain disruptions, inflation and the labor shortage are not easing.”

Your Small Business Lifeline

Inflation is hardly the only thing holding back small business owners. Among some of the other findings:

  • “Fifty-one percent of owners reported job openings that could not be filled, up four points from April.”
  • “The net percent of owners who expect real sales to be higher decreased three points from April to a net negative 15%.”
  • “Thirty-nine percent of owners report that supply chain disruptions have had a significant impact on their business, up three points.”

Small businesses could use some help … and McManamon & Co. can provide it.

McManamon & Co. is an accounting, tax, fraud, forensic and consulting firm that offers custom services to companies across a broad spectrum of industries. And we can aid small businesses in myriad ways — from tax services, including developing cash-saving tax plans, to consulting services on topics such as hiring, strategic planning and cash-flow planning.

Learn more about what we can do for your small or mid-size business. Call us at 440.892.8900 or contact us online.

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