Small business optimism dipped in December: NFIB

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Optimism among small business owners declined in December amid the ongoing struggle with inflation and concerns about the economy slipping into recession, according to the latest report by the National Federation of Independent Business (NFIB).

The NFIB's Small Business Optimism Index fell to 89.8 in December – its lowest level since June of last year – and remained below the 49-year average of 98 for the 12th consecutive month. Pessimism about economic conditions, rising prices and hiring difficulties contributed to the decline.

"Overall, small business owners are not optimistic about 2023 as sales and business conditions are expected to deteriorate," NFIB Chief Economist Bill Dunkelberg said in a statement. "Owners are managing several economic uncertainties and persistent inflation and they continue to make business and operational changes to compensate."

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Hiring difficulties remained a persistent problem for small business owners as 55% of owners reported trying to hire in December, but 93% of those looking to add to their workforce reported having few or no qualified candidates to fill those positions.

Although a majority of small businesses were hiring, 41% reported they had job openings they weren't able to fill in December. While that was the lowest level of 2022 and represented a three-percentage-point decline compared to November, the metric remains historically high relative to monthly surveys in the years before the COVID-19 pandemic.

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The net percentage of business owners raising prices declined by eight percentage points to its lowest level of 2022 in December but continued to be at a high level relative to historical results, as a net 43% of small businesses reported that they raised their average selling prices.

When asked about the single most important facing their business, 32% of small business owners cited inflation – up from 22% a year ago. Higher prices facing small businesses and their consumers contributed to a dip in sales expectations over the next three months, which came in at a net negative 10%, a decline of two percentage points compared to November.

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The Federal Reserve's interest rate hikes to rein in inflation are impacting small businesses' borrowing costs as well. The NFIB's research found that small business borrowers paid an average interest rate of 7.7% on short-term loans in December – an increase of more than two percentage points compared to a year ago.

The level of optimism about the next six months among small business owners surveyed worsened by eight percentage points relative to November to a net negative 51%. That dim outlook was reflected in just 5% of small business owners indicating that the next three months are a "good time to expand" – a figure that was largely unchanged over the last several months of the survey.

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The most important reason cited by small business owners for their outlook was economic conditions, as 42% said it wasn't a good time, 15% said they were uncertain, and just 1% said it was a good time. The political climate was the second-most common reason listed, with 9% citing it as the reason it's not a good time to expand and 5% saying it has created uncertainty.