Summary
Firms remain pessimistic on the economic outlook
The NFIB Small Business Optimism index fell to 89 in April, the lowest reading since early 2013. For historical context, the headline index bottomed out at 91 in April 2020 during the first months of the pandemic. The index hit a record low of 79.7 in 1980 and fell to 81.6 in 2009 during the Great Recession.
While owners are becoming more pessimistic, April’s report should help allay concerns that credit is becoming completely inaccessible for small businesses.
After jumping in March, the net share of firms reporting credit is harder to get fell by three percentage points to a reading that is generally on par with the average levels registered before recent banking sector volatility.
Signs that inflation is still on a downward trajectory were also evident. The net share of owners raising prices decreased by four percentage points to 33%, the fifth straight drop. What’s more, the net percentage of firms indicating that they are planning to raise prices fell to 21%, which marks the lowest share since November 2020.
Furthermore, the net share of firms that reported raising compensation fell to 40% during the month. Despite trending slightly lower recently, April’s reading is still highly elevated. That noted, the net share of owners planning to raise compensation edged lower to 21%, which is in-line with pre-pandemic levels.
The downshift in compensation plans is a sign that the labor market is starting to move into a better balance. That said, small businesses are still finding the search for talent a challenging endeavor. During April, a net 45% of small firms reported that filling open positions was still a struggle. This figure is running nearly double the 49-year historical average of 23%. Even so, a net 17% of firms planned to increase employment in April, up from 15% in March.
Labor quality was the single most important problem facing 24% of respondents, up one percentage point from March. Inflation is still a major issue, but it is no longer ranked as the top problem for small firms for the first time since the start of 2022.
Pessimism about the economic outlook appears to be weighing on overall small business optimism despite easing inflation pressures and reduced credit concerns. The net share of firms expecting the economy to improve in the next six months slipped back to -49%, which is close to the record low of -61% seen in June 2022.
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