Small Business Confidence Hits All-Time Low as Headwind Fatigue Sets In

We learned how resilient small and medium-sized businesses (SMBs) were during the pandemic, but their optimism is waning right now as inflation and recessionary clouds gather, a situation that worsened with today’s news that the Consumer Price Index (CPI) rose to a stunning 9.1% in June.

Foreshadowing the day’s bad news, the National Federation of Independent Businesses (NFIB) said its monthly confidence measure of members slumped to an all-time low.

As stated in a Tuesday (July 12) press release, the NFIB’s Small Business Optimism Index dropped 3.6 points to 89.5 last month — the sixth straight month it’s dipped below the average of 98 over the index’s 48-year history. The number of small business owners expecting better business conditions, meanwhile, dropped to the lowest level since the survey began.

In its June 2022 report, “Small Business Economic Trends,” the NFIB said the low confidence among SMBs is putting the hurt on vital investments like digital systems noting that “A recovery in investment will be needed to spark an improvement in productivity, but this is unlikely to occur while owners remain pessimistic about future business conditions.”

Read: Half of Main Street SMBs Say Economic Uncertainty Threatens Business Performance

Making those investments seem even more unlikely in the near term, NFIB said business loans are costing more for SMBs, stating that “a net 16 percent of owners reported paying a higher rate on their most recent loan, up 2 points from May,” with rate paid on short maturity loans at 5.3% and “25% of all owners borrowing on a regular basis.”

In his commentary, NFIB Chief Economist Bill Dunkelberg said, “It’s a mixed picture on Main Street. Housing is still booming (but slowing), and restaurant sales continue to trend higher. Owners can’t find enough workers, not characteristic of a recession where unemployment is high, not low. Job openings and hiring plans are at record levels. The percent of owners raising compensation is high too. The percent of owners raising selling prices is historically high. Doesn’t sound like a recession, at least from the employment side.”

See also: Inflation Hobbles SMBs’ Ability to Find, Hire Workers

Unlike Other Downturns

The trendlines have been getting clearer for months that SMBs are headed for another bad patch, along with the rest of the economy.

“The Main Street Economic Health Survey: Navigating Economic Uncertainty,” a PYMNTS and Melio collaboration, we surveyed over 530 business small business owners in the first quarter, and the writing was on the wall then, despite a short-lived upbeat mood after winter holidays.

The survey found that 42% of business owners citing “either inflation or economic uncertainty [as] the most significant challenge they face in the year ahead,” with 23% calling inflation their biggest challenge, and 19% reporting COVID-19 as their most pressing concern.

Small business owners are flummoxed by the current downturn as most recessions feature high unemployment, and right now there are an estimated 11 million vacant jobs, according to figures released in May by the U.S. Bureau of Labor Statistics.

In its June report, NFIB said 50% of all owners “reported job openings they could not fill in the current period, down 1 point from last month’s 48-year record high.” NFIB added, “The difficulty in filling open positions is particularly acute in the construction, manufacturing, services, and retail sectors. Openings are lowest in the finance and agriculture sectors. Overall, however, the current level of openings is over 20 percentage points higher than the historical average.”

See the study: Main Street Economic Health Survey: Navigating Economic Uncertainty