Small Business Index hits new low amid fears of economic outlook, worker shortages, and inflation
Small business sentiment took a significant hit in the final quarter of the year, raising concerns about the near-term economic outlook. The Small Business Index, jointly published by MetLife and the U.S. Chamber of Commerce, experienced a sharp decline, dropping to 61.3 last month. This marks a 7.9 percentage point decrease from the previous quarter and a return to the low scores seen earlier in the year and in late 2022.
According to Tom Sullivan, Vice President of Small Business Policy at the Chamber of Commerce, small business owners’ negative impression of the national economy continues to persist. “With inflation still outpacing revenue expectations, small business owners are wary of the future,” Sullivan said.
Worsening Economic View
The decline in small business sentiment primarily stems from a worsening view of the U.S. economy. Only a mere 25% of small businesses believe the national economy is in “good health,” while just 30% see their local economy in good shape. These figures represent an 8 percentage point decrease from the previous quarter.
Rampant Inflation Concerns
Small business owners remain deeply concerned about persistently high inflation. For six consecutive quarters, 50% of small businesses have cited inflation as one of their biggest challenges. Although the consumer price index has decreased from its peak of 9.1% in June 2022, it still remains above the Federal Reserve’s 2% target. Additionally, prices have soared by a staggering 17.23% compared to January 2021, before the inflation crisis began.
Hiring Challenges Persist
Throughout the October to December period, hiring proved to be a major obstacle for small businesses. Low unemployment rates and rapid wage increases over the past year have made it increasingly difficult for these businesses to compete with larger companies and recruit new employees. Approximately 45% of small business owners reported actively searching for, recruiting, or interviewing new talent in 2023. Among these respondents, half highlighted the challenge of offering competitive pay and benefits, while 60% expressed difficulties in meeting existing employees’ salary expectations.
Despite the numerous challenges faced, small business owners maintain some optimism about their own finances. The index reveals that around two-thirds of small businesses consider the health of their businesses to be either very good or somewhat good. Sullivan pointed out that holiday shopping is breaking records this year, and most small businesses report that they are managing adequately despite the persistent headwinds.