Small Business Owners’ Expectations for the Future at 48-Year Low

Twenty-eight percent of owners reported inflation was their single most important problem in operating their business, a decrease of four points from April. The net percent of owners raising average selling prices increased two points to a net 72% (seasonally adjusted), back to the highest reading in the 48-year-history of the survey last reached in March and 32 points higher than May 2021.

“Inflation continues to outpace compensation which has reduced real incomes across the nation,” said 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.”

Other key findings include:

• 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%.
• A net 46% (seasonally adjusted) of owners reported raising compensation, down three points from April with a net 25% planning to raise compensation in the next three months, down two points from April but historically high.
• Thirty-nine percent of owners report that supply chain disruptions have had a significant impact on their business, up three points. Another 31% report a moderate impact and 22% report a mild impact. Only 8% of owners report no impact from the recent supply chain disruptions.

As reported in NFIB’s monthly jobs report, the labor markets are tight as 51% (seasonally adjusted) of all owners reported job openings they could not fill in the current period. Ninety-two percent of those hiring or trying to hire reported few or no qualified applicants for the positions they were trying to fill. Twelve percent of owners cited labor costs as their top business problem. Twenty-three percent said that labor quality was their top business problem, behind inflation.

Unadjusted, 3% of owners reported lower average selling prices and 71% reported higher average selling prices. 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).

Fifty-three percent of owners reported capital outlays in the last six months, down one point from April. Of those owners making expenditures, 36% reported spending on new equipment, 21% acquired vehicles, and 15% improved or expanded facilities. Six percent of owners acquired new buildings or land for expansion and 12% spent money for new fixtures and furniture. Twenty-five percent of owners plan capital outlays in the next few months, down two points from April.

One percent of owners (seasonally adjusted) reported higher nominal sales in the past three months, down two points from April. The net percent of owners expecting higher real sales volumes decreased three points to a net negative 15%.

The net percent of owners reporting inventory increases fell five points to a net negative 1%. Seventeen percent of owners reported increases in stocks while 15% reported reductions as solid sales reduced inventories at many firms. A net 8% of owners viewed current inventory stocks as “too low” in May, up two points from April. A net 1% of owners plan inventory investment in the coming months.

The frequency of reports of positive profit trends was a net negative 24%, down seven points from April. Among the owners reporting lower profits, 34% blamed the rise in the cost of materials, 25% blamed weaker sales, 10% cited labor costs, 9% cited the usual seasonal change, 8% cited lower prices, and 3% cited higher taxes or regulatory costs. For owners reporting higher profits, 49% credited sales volumes, 18% cited higher prices, and 16% cited usual seasonal change.

Two percent of owners reported that all their borrowing needs were not satisfied. Twenty-two percent reported all credit needs met and 65% said they were not interested in a loan. A net 4% reported their last loan was harder to get than in previous attempts. One percent of owners reported that financing was their top business problem. A net 14% of owners reported paying a higher rate on their most recent loan, down two points from April.

The NFIB Research Center has collected Small Business Economic Trends data with quarterly surveys since the 4^th quarter of 1973 and monthly surveys since 1986. Survey respondents are randomly drawn from NFIB’s membership. The report is released on the second Tuesday of each month. This survey was conducted in May 2022.