Inflation weighing on business owners' sentiment

With Inflation raging, many products and services cost double what they did at this time last year. These ever rising costs have business owners feeling doubtful conditions will improve with any real significance in the months ahead, according to a new poll from the National Federation of Independent Business.

For the second month in a row, the NFIB's Small Business Optimism Index held at a reading of approximately 93, marking the fourth consecutive instance that it's been well below the historical average of 98.

Fueling business owners' discontent was inflation. Indeed, nearly one-third of respondents in the survey cited this as their biggest business problem, more so than the supply chain or the lack of qualified job applicants for open roles.

Bill Dunkelberg, chief economist at NFIB, noted that inflation affects every aspect of how an organization operates in terms of what decisions are made and when.

"Small-business owners are struggling to deal with inflation pressures," Dunkelberg explained. "The labor supply is not responding strongly to small businesses' high wage offers and the impact of inflation has significantly disrupted business operations."

Most business owners have raised their prices due to rising costs of their own.

CPI rose again in April
Many of these wages have been offset by inflation. The government tracks the degree to which prices rise or fall through the Consumer Price Index, which has trended higher fairly consistently for well over a year. In April, the all items index segment of the CPI rose 8.3% on a year-over-year basis, according to the Department of Labor. Not including the cost of food and energy, the measure rose 6.2% from 12 months ago. According to the NFIB poll, the vast majority of respondents — 70% — have raised their average selling prices. Just 4% said they're pricing their products and services for less than what they do normally. 

Inflation isn't the only issue that's weakened small-business owners' overall outlook. As previously noted, over 90% of respondents said supply chain disruptions had adversely affected their operations — 36% significantly so, according to the NFIB survey.

Much like inflation, a confluence of factors have contributed to the supply chain problems that are keeping businesses from reaching their goals, one of which has to do with excessive container volume at the nation's largest shipping ports. But some of those problems could be smoothed out — or, potentially, become even more tumultuous — depending on the outcome of contract negotiations between the International Longshore and Warehouse Union with the Pacific Maritime Association. With the contract poised to expire on July 1, the PMA and ILWU are aiming to hammer out an agreement as soon as possible.

The two sides are at odds over several issues, chief among them being what role automation will play moving forward at these port locations. While the Pacific Maritime Association is in favor of implementing more of this technology to reduce operational costs and quicken the supply chain, the ILWU is staunchly against the further leveraging of automation, believing it will cost them their jobs.