The NFIB Small Business Optimism Index decreased slightly in January to 97.1, down 1.8 points from December. Inflation remains a problem for small businesses as 22 percent of owners reported that inflation was their single most important business problem, unchanged from December when it reached the highest level since 1981. The net percent of owners raising average selling prices increased four points to a net 61 percent (seasonally adjusted), the highest reading since the fourth quarter of 1974.

“More small business owners started the New Year raising prices in an attempt to pass on higher inventory, supplies and labor costs,” said NFIB Chief Economist Bill Dunkelberg. “In addition to inflation issues, owners are also raising compensation at record high rates to attract qualified employees to their open positions.”

Key findings include:

• One of the Index components improved, seven declined, and two were unchanged.
• Owners expecting better business conditions over the next six months increased two points to a net negative 33 percent. Small business owners remain pessimistic about future economic conditions as this indicator has declined 13 points over the past six months.
• Forty-seven percent of owners reported job openings that could not be filled, a decrease of two points from December.
• Inventory accumulation plans fell five percentage points.

As reported in NFIB’s monthly jobs report, a net 50 percent (seasonally adjusted) reported raising compensation, a 48-year record high reading. A net 27 percent plan to raise compensation in the next three months. Eleven percent of owners cited labor costs as their top business problem and 23 percent said that labor quality was their top business problem.

Owners’ plans to fill open positions remain at record high levels, with a seasonally adjusted net 26 percent planning to create new jobs in the next three months, down two points from December and just six points below the highest reading in the 48-year history of the survey set in August.

Fifty-eight percent of small business owners reported capital outlays in the last six months, up one point from December. Of those owners making expenditures, 40 percent reported spending on new equipment, 22 percent acquired vehicles, 15 percent improved or expanded facilities, 8 percent acquired new buildings or land for expansion, and 15 percent spent money for new fixtures and furniture. Twenty-nine percent of owners plan capital outlays in the next few months, unchanged from December and two points higher than the 48-year average.

Seasonally adjusted, 2 percent of all owners reported higher nominal sales in the past three months. The net percent of owners expecting higher real sales volumes decreased by six points to a net negative 3 percent.

The net percent of owners reporting inventory change increased two points to a net 9 percent. Eighteen percent reported increases in stocks while 15 percent reported reductions. Thirty-six percent of owners report that supply chain disruptions have had a significant impact on their business. Another 32 percent report a moderate impact and 22 percent report a mild impact. Only 9 percent report no impact from recent supply chain disruptions. A net 7 percent of owners viewed current inventory stocks as “too low” in January, down two points. A net 3 percent of owners plan inventory investment in the coming months, down five points from December, reflecting the success in inventory building in the fourth quarter.

The net percent of owners raising average selling prices increased four points to a net 61 percent (seasonally adjusted), the highest reading since the fourth quarter of 1974. Price raising activity over the past 12 months has continued to escalate, reaching levels not seen since the early 1980s.

Five percent of owners reported lower average selling prices and 62 percent reported higher average prices. Price hikes were the most frequent in wholesale (88 percent higher, 3 percent lower), manufacturing (71 percent higher, 1 percent lower), retail (69 percent higher, 4 percent lower), and construction (67 percent higher, 5 percent lower). Seasonally adjusted, a net 47 percent of owners plan price hikes.

The frequency of reports of positive profit trends decreased three points to a net negative 17 percent. Among the owners reporting lower profits, 32 percent blamed the rise in the cost of materials, 19 percent blamed weaker sales, 9 percent cited labor costs, 18 percent cited the usual seasonal change, 7 percent cited lower prices, and 3 percent cited higher taxes or regulatory costs. For owners reporting higher profits, 63 percent credited sales volumes, 12 percent cited usual seasonal change, and 13 percent cited higher prices.

Three percent of owners reported that all their borrowing needs were not satisfied. Twenty-five percent reported all credit needs met and 62 percent said they were not interested in a loan. A net 2 percent reported their last loan was harder to get than in previous attempts. One percent reported that financing was their top business problem. A net 4 percent of owners reported paying a higher rate on their most recent loan.