NFIB’s Small Business Optimism Index decreased 0.1 point in November to 90.6, which marks the 23rd consecutive month below the 50-year average of 98. Twenty-two percent of owners reported that inflation was their single most important problem in operating their business, unchanged from October but 10 points lower than this time last year.

“Job openings on Main Street remain elevated as the economy saw a strong third quarter,” said NFIB Chief Economist Bill Dunkelberg. “However, even with the growing economy, small business owners have not seen a strong wave of workers to fill their open positions. Inflation also continues to be an issue among small businesses.”

Key findings include:

- Owners expecting better business conditions over the next six months increased one point from October to a net negative 42% seasonally adjusted.
- A net negative 17% of all owners (seasonally adjusted) reported higher nominal sales in the past three months, unchanged from October and the lowest reading since July 2020.
- Forty percent (seasonally adjusted) of owners reported job openings that were hard to fill, down three points.
- Seasonally adjusted, a net 30% of owners plan to raise compensation in the next three months, up six points from October and the highest since December 2021.
- The net percent of owners raising average selling prices decreased five points from October to a net 25% (seasonally adjusted).
- The net percent of owners who expect real sales to be higher increased two points from October to a net negative 8% (seasonally adjusted).

As reported in NFIB’s monthly jobs report, owners’ plans to fill open positions remain elevated with a seasonally adjusted net 18% planning to create new jobs in the next three months. Overall, 54% reported hiring or trying to hire in November. Of those hiring or trying to hire, 93% of owners reported few or no qualified applicants for the positions they were trying to fill.

Sixty-one percent of owners reported capital outlays in the last six months, up four points from October. Of those making expenditures, 41% reported spending on new equipment, 23% acquired vehicles, and 17% improved or expanded facilities. Eleven percent spent money on new fixtures and furniture and 6% acquired new buildings or land for expansion. Twenty-three percent (seasonally adjusted) plan capital outlays in the next few months.

A net negative 17% of all owners (seasonally adjusted) reported higher nominal sales in the past three months, remaining the lowest reading since July 2020. The net percent of owners expecting higher real sales volumes improved two points to a net negative 8%.

The net percent of owners reporting inventory gains increased three points to a net negative 3%. Not seasonally adjusted, 14% reported increases in stocks and 16% reported reductions. A net 0% of owners viewed current inventory stocks as “too low” in November, up three points from October. By industry, shortages are reported most frequently in the retail (14%), finance (13%), and services (10%) sectors. Shortages in construction (8%) have been reduced because home sales have slowed dramatically due to higher interest rates. A net negative 3% of owners plan inventory investment in the coming months.

The net percent of owners raising average selling prices decreased five points from October to a net 25% seasonally adjusted. Twenty-two percent of owners reported that inflation was their single most important problem in operating their business, unchanged from last month. Unadjusted, 14% reported lower average selling prices and 36% reported higher average prices. Price hikes were the most frequent in finance (48% higher, 10% lower), retail (47% higher, 9% lower), construction (42% higher, 11% lower), wholesale (32% higher, 16% lower), and services (30% higher, 9% lower). Seasonally adjusted, a net 34% of owners plan price hikes.

Seasonally adjusted, a net 36% of owners reported raising compensation, unchanged from October. A net 30% (seasonally adjusted) plan to raise compensation in the next three months, up six points from October and the highest reading since December 2021. Eight percent of owners cited labor costs as their top business problem.

The frequency of reports of positive profit trends was a net negative 32%, unchanged from October. Among the owners reporting lower profits, 36% blamed weaker sales, 16% blamed the rise in the cost of materials, 14% cited labor costs, 9% cited lower prices, 6% cited the usual seasonal change, and 5% cited financing costs. For owners reporting higher profits, 60% credited sales volumes, 14% cited higher selling prices, and 11% cited usual seasonal change.

Two percent of owners reported that all their borrowing needs were not satisfied. Twenty-five percent reported all credit needs met and 63% said they were not satisfied in a loan. A net 8% reported their last loan was harder to get than in previous attempts. Five percent reported that financing was their top business problem. A net 25% 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 fourth 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 November 2023.

LABOR MARKETS

Forty percent (seasonally adjusted) of all owners reported job openings they could not fill in the current period, down 3 points from October. Thirty-three percent have openings for skilled workers (down 4 points) and 14 percent have openings for unskilled labor (down 4 points). The difficulty in filling open positions is particularly acute in the construction, manufacturing, and transportation sectors. Job openings in construction were down 9 points from last month but still nearly half have a job opening they can’t fill. Openings are lowest in the agriculture and finance sectors. Owners’ plans to fill open positions remain elevated, with a seasonally adjusted net 18 percent planning to create new jobs in the next three months, up 1 point from October and 14 points below its record high reading of 32 percent reached in August 2021. Overall, 54 percent reported hiring or trying to hire in November, down 7 points from October. Fifty percent (93 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 5 points). Twenty-six percent of owners reported few qualified applicants for their open positions (down 5 points) and 24 percent reported none (unchanged). Labor quality reported as the single most important problem for business owners increased 1 point to 24 percent, and labor cost declined 1 point to 8 percent.

CAPITAL SPENDING

Sixty-one percent reported capital outlays in the last six months, up 4 points from October, a solid gain. A recovery in investment is needed to support an improvement in productivity, but this is unlikely to occur while owners remain pessimistic about future business conditions and lending standards tighten with rising interest rates. Longer term, the worker shortage has given firms an incentive to invest in labor saving technology. But, overall, capital spending is not strong historically. Of those making expenditures, 41 percent reported spending on new equipment (up 4 points), 23 percent acquired vehicles (down 1 point), and 17 percent improved or expanded facilities (down 1 point). Eleven percent spent money on new fixtures and furniture (down 1 point) and 6 percent acquired new buildings or land for expansion (down 1 point). Twenty-three percent (seasonally adjusted) plan capital outlays in the next few months, down 1 point from October. A more positive view of the future economy and economic policy would help stimulate longer term investment spending, but currently, owners’ views about the future are not supportive and financing costs are very high.

INFLATION

The net percent of owners raising average selling prices decreased 5 points from October to a net 25 percent seasonally adjusted. Twenty-two percent of owners reported that inflation was their single most important problem in operating their business, down 1 point from last month. Unadjusted, 14 percent (up 3 points) reported lower average selling prices and 36 percent (down 3 points) reported higher average prices. Price hikes were most frequent in finance (48 percent higher, 10 percent lower, as interest rates rise), retail (47 percent higher, 9 percent lower), construction (42 percent higher, 11 percent lower), wholesale (32 percent higher, 16 percent lower), and services (30 percent higher, 9 percent lower). Seasonally adjusted, a net 34 percent plan price hikes (up 1 point).

CREDIT MARKETS

Two percent of owners reported that all their borrowing needs were not satisfied (unchanged). Twenty-five percent reported all credit needs met (up 2 points) and 63 percent said they were not interested in a loan (down 1 point). A net 8 percent reported their last loan was harder to get than in previous attempts (up1 point). Five percent reported that financing was their top business problem (unchanged). A net 25 percent of owners reported paying a higher rate on their most recent loan, down 3 points from October. The average rate paid on short maturity loans was 9.3 percent, up 0.2 percentage points from last month. Thirty-one percent of all owners reported borrowing on a regular basis (up 4 points).

COMPENSATION AND EARNINGS

Seasonally adjusted, a net 36 percent reported raising compensation, unchanged from October. A seasonally adjusted net 30 percent plan to raise compensation in the next three months, up 6 points from October and the highest reading since December 2021. Eight percent cited labor costs as their top business problem, down 1 point from October. Twenty-four percent said that labor quality was their top business problem (up 1 point). The frequency of reports of positive profit trends was a net negative 32 percent, unchanged from October. Among owners reporting lower profits, 36 percent blamed weaker sales, 16 percent blamed the rise in the cost of materials, 14 percent cited labor costs, 9 percent cited lower prices, 6 percent cited the usual seasonal change, and 5 percent cited financing costs. For owners reporting higher profits, 60 percent credited sales volumes, 14 percent cited higher selling prices, and 11 percent cited usual seasonal change.

SALES AND INVENTORIES

A net negative 17 percent of all owners (seasonally adjusted) reported higher nominal sales in the past three months, unchanged from October and remaining the lowest reading since July 2020. The net percent of owners expecting higher real sales volumes improved 2 points to a net negative 8 percent. The net percent of owners reporting inventory gains increased 3 points to a net negative 3 percent. Not seasonally adjusted, 14 percent reported increases in stocks (up 3 points) and 16 percent reported reductions (unchanged). A net 0 percent of owners viewed current inventory stocks as “too low” in November, up 3 points from October. By industry, shortages are reported most frequently in the retail (14 percent), finance (13 percent), and services (10 percent) sectors. A net negative 3 percent of owners plan inventory investment in the coming months, down 3 points from October.

COMMENTARY

The economy grew at a totally unexpected and astounding rate in the third quarter according to government statistics, taking the rate from a slow 2% pace to over 5%. That much growth requires a lot more labor, one would expect more than what was reported in the last few months of BLS data. Indeed for most of the year, the “rosy” reports of job growth were accompanied by downward revisions in the number of jobs reported in the preceding two months muting initial jobs excitement. The net percent of NFIB firms increasing employment has been negative since March, with more firms decreasing jobs than adding them. The percent of owners reporting unfilled job openings has declined from 51% (in 2020) to 40% in November, a shift in the labor market now reflected in the JOLTS report. So, openings remain elevated but the surge in the economy did not bring a strong wave of workers to fill open positions.

Such strong growth should also show up in sales gains. The net percent of firms reporting higher sales volumes began the year at -4%, but fell steadily to -17% in November. Hopefully that will improve for December! But that’s not “5%” growth. There was a significant increase in “inventory investment,” a result of making stuff and paying workers, but not selling the product to a final user (consumer or business). Visually, a parking lot full of unsold electric vehicles, a drag on Q4 growth most likely.

For the Fed, the policy picture gets muddier. The basic idea behind raising interest rates was to cool spending, resulting in less pressure on prices (or even price cuts). Volcker found inflation hard to tame and raised the policy rate to double digit levels. Inflation is still around 3.5%, well below the 9% high for this cycle, but above the Fed’s 2% target. Will this surge in spending cause inflation to rise? Small businesses didn’t experience the surge in spending and the percent who raised prices fell 5 points to 25% of all firms, down from over 60% when inflation started. This will be a comfort for the Fed. In the meantime, the Fed and consumers will have to wait for new data to provide some perspective on what’s really happening in the economy.