NFIB’s Small Business Optimism Index rose 0.4 points in July to 89.9, however, it is the sixth consecutive month below the 48-year average of 98. Thirty-seven percent of small business owners reported that inflation was their single most important problem in operating their business, an increase of three points from June and the highest level since the fourth quarter of 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, NFIB Chief Economist. “As we move into the second half of 2022, owners will continue to manage their businesses into a very uncertain future.”

Key findings include:

- Owners expecting better business conditions over the next six months increased nine points from June’s record low level to a net-negative 52%. Expectations for better business conditions have deteriorated every month from January to June of this year.
- Forty-nine percent of owners reported job openings they could not fill in the current period, down one point from June but historically very high.
- Seasonally adjusted, a net 37% plan price hikes, down 12 points.
- The net percent of owners raising average selling prices decreased seven points to a net 56% (seasonally adjusted). The decline is significant but the net percent still raising prices is inflationary.
- The net percent of owners who expect real sales to be higher decreased one point from June to a net negative 29%.
- The Uncertainty Index increased 12 points from last month to 67.

As reported in NFIB’s monthly jobs report, a net 48% reported raising compensation and a net 25% plan to raise compensation in the next three months. Nine percent of owners cited labor costs as their top business problem and 21% said that labor quality was their top business problem, remaining in second place behind inflation.

Fifty-one percent of owners reported capital outlays in the last six months. Of those making expenditures, 36% reported spending on new equipment, 21% acquired vehicles, and 14% improved or expanded facilities. Nine percent spent money for new fixtures and furniture and 5% acquired new buildings or land for expansion. Twenty-two percent of owners plan capital outlays in the next few months.

A net negative 5% of all owners (seasonally adjusted) reported higher nominal sales in the past three months. The net percent of owners expecting higher real sales volumes decreased one point to a net negative 29%, the second weakest quarterly measure ever.

The net percent of owners reporting inventory increases rose five points to 1%. Not seasonally adjusted, 18% reported increases in stocks and 15% reported reductions as solid sales reduced inventories at many firms.

Thirty-two percent of owners reported that supply chain disruptions have had a significant impact on their business. Another 36% report a moderate impact and 23% report a mild impact. Only 9% report no impact from recent supply chain disruptions.

A net 2% of owners viewed current inventory stocks as “too low” in July, down three points from June. By industry, shortages are reported most frequently in manufacturing (20%), wholesale (20%), retail (19%), non-professional services (14%), and transportation (14%). A net 1% of owners plan inventory investment in the coming months down three points from June.

The net percent of owners raising average selling prices decreased seven points from June to a net 56% (seasonally adjusted). Unadjusted, 8% reported lower average selling prices and 65% reported higher average prices. Price hikes were the most frequent in wholesale (80% higher, 8% lower), manufacturing (73% higher, 7% lower), construction (73% higher, 4% lower), and retail (72% higher, 6% lower). Seasonally adjusted, a net 37% plan price hikes, down 12 points. The seasonal adjustments for price plans and actual prices were revised. The data in this report reflect those changes.

The frequency of positive profit trends was a net negative 26%, down one point from June. Among owners reporting lower profits, 40% blamed the rise in the cost of materials, 17% blamed weaker sales, 10% cited labor costs, 10% cited lower prices, 4% cited the usual seasonal change, and 2% cited higher taxes or regulatory costs. For owners reporting higher profits, 42% credited sales volumes, 26% cited usual seasonal change, and 16% cited higher prices.

Three percent of owners reported that all their borrowing needs were not satisfied. Twenty-five percent reported all credit needs met and 62% said they were not interested in a loan. A net 5% reported their last loan was harder to get than in previous attempts. One percent reported that financing was their top business problem. A net 19% of owners reported paying a higher rate on their most recent loan.

The NFIB Research Center has collected Small Business Economic Trends data with quarterly surveys since the 4th 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 July 2022.

LABOR MARKETS
Forty-nine percent (seasonally adjusted) of all owners reported job openings they could not fill in the current period, down 1 point from June. Forty-two percent have openings for skilled workers (unchanged) and 21 percent have openings for unskilled labor (down 1 point). The difficulty in filling open positions is particularly acute in the transportation, construction, manufacturing, and wholesale sectors. Openings are lowest in the agriculture and finance sectors. Overall, however, the current level of openings is over 20 percentage points higher than the historical average. Owners’ plans to fill open positions remain elevated, with a seasonally adjusted net 20 percent planning to create new jobs in the next three months (up 1 point). Fifty-seven percent (91 percent of those hiring or trying to hire) of owners reported few or no qualified applicants for the positions they were trying to fill (down 3 points). Thirty percent of owners reported few qualified applicants for their open positions (down 3 points) and 27 percent reported none (unchanged, and just 2 points shy of the 48- year record high).

CAPITAL SPENDING
Fifty-one percent reported capital outlays in the last six months, unchanged from June. Of those making expenditures, 36 percent reported spending on new equipment (down 1 point), 21 percent acquired vehicles (down 3 points), and 14 percent improved or expanded facilities (unchanged). Nine percent spent money for new fixtures and furniture (down 4 points) and 5 percent acquired new buildings or land for expansion (unchanged). Twenty-two percent plan capital outlays in the next few months, down 1 point from June. A more positive view of the future economy and economic policy would help stimulate longer term investment spending, but currently, owner views about the future are not supportive.

INFLATION
The net percent of owners raising average selling prices decreased 7 points from June to a net 56 percent seasonally adjusted. Unadjusted, 8 percent (up 4 points) reported lower average selling prices and 65 percent (down 4 points) reported higher average prices. Price hikes were most frequent in wholesale (80 percent higher, 8 percent lower), manufacturing (73 percent higher, 7 percent lower), construction (73 percent higher, 4 percent lower), and retail (72 percent higher, 6 percent lower). Seasonally adjusted, a net 37 percent plan price hikes (down 12 points). The seasonal adjustments for price plans and actual prices were revised. The data presented in this report reflect those changes.

CREDIT MARKETS
Three percent of owners reported that all their borrowing needs were not satisfied (up 2 points). Twenty-five percent reported all credit needs met (down 2 points) and 62 percent said they were not interested in a loan (up 1 point). A net 5 percent reported their last loan was harder to get than in previous attempts (up 2 points). One percent reported that financing was their top business problem (unchanged). A net 19 percent of owners reported paying a higher rate on their most recent loan, up 3 points from June. The average rate paid on short maturity loans was 5.86 percent. Twenty-six percent of all owners reported borrowing on a regular basis (up 1 point).

COMPENSATION AND EARNINGS
Seasonally adjusted, a net 48 percent reported raising compensation, unchanged from June. A net 25 percent plan to raise compensation in the next three months, down 3 points from June. Nine percent cited labor costs as their top business problem, up 1 point from June, and 21 percent said that labor quality was their top business problem (down 2 points). Labor quality remains in second place behind “inflation.” The frequency of reports of positive profit trends was a net negative 26 percent, down 1 point from June. Among owners reporting lower profits, 40 percent blamed the rise in the cost of materials, 17 percent blamed weaker sales, 10 percent cited labor costs, 10 percent cited lower prices, 4 percent cited the usual seasonal change, and 2 percent cited higher taxes or regulatory costs.

SALES AND INVENTORIES
A net negative 5 percent of all owners (seasonally adjusted) reported higher nominal sales in the past three months, up 3 points from June, but still a poor showing. The net percent of owners expecting higher real sales volumes decreased 1 point to a net negative 29 percent. The net percent of owners reporting inventory increases rose 5 points to 1 percent. Not seasonally adjusted, 18 percent reported increases in stocks and 15 percent reported reductions as solid sales reduced inventories at many firms. Thirty-two percent of owners recently reported that supply chain disruptions have had a significant impact on their business. Another 36 percent report a moderate impact and 23 percent report a mild impact. Only 9 percent report no impact from recent supply chain disruptions. A net 2 percent of owners viewed current inventory stocks as “too low” in July, down 3 points from June. A net 1 percent of owners plan inventory investment in the coming months down 3 points from June.

COMMENTARY
Uncertainty in the small business sector is climbing again with more owners unsure of what’s coming their way. The news is dominated by recession talk. But labor shortages remain challenging. The stock market has posted significant losses this year. Food and housing are in shorter supply and very expensive. But fuel prices are starting to ease up. When it comes to uncertainties, the list goes on.

Small business owners on Main Street (accounting for about 40% of our GDP and employment) are trying to run their businesses in the face of supply chain disruptions, labor shortages, covid disruptions, and double-digit inflation on the input side (Producer Price Index, June 11.3% over 12 months), all while global risks rise. Mid-term elections are approaching and it is not clear how they will work out. The only bright spot seems to be their enthusiasm for hiring more workers, even as expensive as they have become, sales remain supportive of hiring. Job openings and their plans to fill them are historically very high. But everything else is down, capital spending plans, inventory investment plans, expected real sales way down, the environment for expanding negative, interest rates rising, it doesn’t add up to an optimistic outlook. As we move into the second half of 2022, owners will continue to manage their firms into our very uncertain future.