Small business owners' confidence plummeted to its lowest level since December 2012, as persistent inflation worries continue to cast a shadow over economic optimism. The National Federation of Independent Business (NFIB) reported a confidence index reading of 88.5 for March, a slight decline from February's figure.
NFIB Chief Economist Bill Dunkelberg expressed concern over the economic challenges faced by small businesses. "Small business optimism has reached the lowest level since 2012 as owners continue to manage numerous economic headwinds,” Dunkelberg noted. He added, “Inflation has once again been reported as the top business problem on Main Street and the labor market has only eased slightly.”
The NFIB survey revealed that a quarter of the respondents identified inflation, including the higher costs of inputs and labor, as their primary concern. Interestingly, a net 28% of small businesses indicated they had increased their selling prices in March, with an additional 33% planning to raise prices in the near future, according to the seasonally adjusted data.
Moreover, the report highlighted a net 38% of businesses boosting employee compensation, marking a 3 percentage point increase from the previous month. This coincides with the Labor Department's recent findings that average hourly earnings rose by 0.3% in March and 4.1% on an annual basis.
The news of diminishing small business confidence arrives amid contradictory inflation signals. While the Commerce Department's personal consumption expenditures price index recorded a 2.5% annual inflation rate in February, the mainstream narrative is for inflation to recede. The Federal Reserve, which targets a 2% annual inflation rate, noted a slight drop in its main inflation gauge to 2.8% after excluding food and energy prices.
Upcoming releases, such as the consumer price index, are anticipated to show a 3.4% headline rate and a 3.7% core rate. The New York Fed's survey indicated 'stable inflation expectations' for the near term, with a slight increase in the three-year outlook and a decrease in the five-year expectation.
However, the same survey also reported a significant rise in expected rent increases—up by 8.7% over the next year. This is a dilemma for the Federal Reserve, which relies on moderating shelter inflation as part of its strategy.
