Business leaders said inflation and high labor costs were creating headwinds, with small business confidence posting its steepest drop in 13 months in January.
According to the report, the National Federation of Independent Business Small Business Optimism Composite Index began 2024 declining from 91.9 in December to 89.9 in January, the largest decline since December 2022 and the 25th consecutive month of 50. This was lower than the annual average of 98. The NFIB made the announcement on Tuesday. This figure was the lowest level since May 2023.
Furthermore, the number of small business owners expecting sales to increase over the next three months decreased to -16% from -4% in the previous month.
Rising inflation and rising labor costs are lowering business owners' expectations for their companies, with 20% citing inflation as their top concern and 39% saying they are struggling to fill job openings.
“Small business owners continue to make appropriate business adjustments in response to the continued economic challenges they face,” said Bill Dunkelberg, chief economist at NFIB. “Small business owners' optimism declined in January as inflation remains a major hurdle on Main Street.”
The decline in sentiment occurs even though the general economic outlook remains positive. It is noteworthy that the consumer confidence index rose for the third consecutive month, reaching 114.8 in January, up from 108 in December.
“Weakening optimism among small businesses appears to be at odds with the notable increase in consumer confidence in January,” Wells Fargo said in a note.
The newly announced January inflation rate of 3.1% disappointed markets that had bet on a lower number to bring forward the rate cut schedule. The latest consumer price index readings served as a reminder that the Federal Reserve does more than just keep inflation in check. still.
In the NFIB survey, 5% of business owners say a major challenge they face is financing, and many have paid less for their debt since the Fed began raising interest rates about two years ago. It has also become clear that they are paying high interest rates.
