Steady Optimism Among Small Businesses Despite Inflation and Tax Worries

Despite ongoing challenges like inflation, labor shortages, and taxes, small business optimism remained steady in October. According to the National Federation of Independent Business (NFIB), the optimism index registered at 97.8 for the month, only a slight decrease of 0.1 points from September. This number is just below the long-term average of 98.

Understanding the Current Mood

The NFIB optimism index has shown considerable fluctuation over the years, peaking at 105.1 and dipping to as low as 88.5. In addition to the optimism index, NFIB's uncertainty index, which gauges concerns within the small business sector, decreased by 6 points to 84 in October. Although this signifies a drop in uncertainty, it remains above the historical average of 68, marking the lowest level of uncertainty since last December.

Holly Wade, the NFIB’s Executive Director of Research, highlighted this significant shift in sentiment, stating, “We certainly want them to be more comfortable in making decisions based on their business. So, having confidence in doing that is generally helpful.” According to Wade, the views regarding certainty have become more balanced, with an equal split between positive and negative outlooks.

Impact of Recent Elections

Some small business owners have expressed concerns that recent Democratic victories in federal and state elections might lead to increased tax and regulatory burdens. However, Wade suggested that there is also a sense of hope that the upcoming Congress can work collaboratively to address affordability issues that impact small businesses.

Pricing Challenges Persist

The survey results indicate that small businesses continue to face significant price pressures. In response, many are raising their prices more frequently than usual, attempting to counteract the rising cost of inputs. Wade noted, “One of the main concerns is how much they can pass along those higher input costs to their customers and how frequently they can do it without eroding their customer base.”

Inflation, taxes, and the quality and availability of labor have been identified as the main challenges for small business owners. Notably, tax-related concerns have reached their highest level since May 2021, with 21% of small business owners identifying taxes as their most pressing issue, closely following labor concerns at 25%. Inflation came in third with 17% of owners highlighting it as a key challenge.

Future Outlook

Interestingly, a small number of owners are beginning to express concerns about having excess supply and inventory, indicating they may aim to reduce stock in the near future. On a more positive note, there has been an uptick in the assessment of overall business health, with nearly 70% of owners rating their business as either good or excellent in October, an increase from around 60% the previous month.

This month's surveys will provide initial insights into the sentiment of small business owners post-election. Wade remarked that the October data revealed a somewhat optimistic outlook, especially concerning the health of businesses as they approach the holiday season and the remainder of 2023.