Small business owners report lowest level of positive profit trends since 2010

Uncertainty among small business owners rose in August, according to the National Federation of Independent Businesses.

“Inflation and questions over whether Congress will save the 20 percent small business tax deduction are making it difficult for local businesses to plan ahead,” State NFIB Director Rosemary Elebash said in a written statement.

Unless Congress makes the deduction permanent, it will expire next year.

“If this deduction is allowed to expire, small businesses won’t have as much to invest in their businesses, and it will be a lot harder for them to meet the needs of their customers and support their communities,” Elebash said.

The frequency of reports of positive profit trends among small businesses was a net negative 37% in August, seven points worse than in July and the lowest level since March of 2010, according to the NFIB.

“The mood on Main Street worsened in August, despite last month’s gains,” said NFIB Chief Economist Bill Dunkelberg in a statement. “Historically high inflation remains the top issue for owners as sales expectations plummet and cost pressures increase. Uncertainty among small business owners continues to rise as expectations for future business conditions worsen.”

A new survey from the National Federation of Independent Business found that

Published monthly, the August survey also includes the NFIB Small Business Optimism Index, which measures small business owner sentiment on the economy. In August, the index fell by 2.5 points to 91.2, erasing the slight gains seen in July and marking the 32nd consecutive month below the 50-year average of 98.

The NFIB’s Uncertainty Index, which measures small business owner uncertainty towards the economy, rose to 92, two points higher than in July and its highest level since October of 2020.

Of the 590 small business owners that responded to the survey, inflation remained the top issue, with 24% indicating it to be their top operating issue.

Other challenges small business owners cited in the survey were labor shortages, a decline in sales expectations and rising wages.

A total of 40% of small business owners indicated that they had job openings they could not fill, with manufacturing, transportation and construction sectors hit the hardest. A net negative 18% indicated they anticipated higher real sales in the next three months, nine points worse than in July.

Unfilled job openings for what the NFIB labels “skilled workers” were more prevalent, with 36% of respondents indicating they had openings for skilled labor, up four points from July, and 15% had openings for “unskilled labor,” down one point from July.

A net 13% of small business owners said they plan to create new jobs within the next three months, a two-point drop from July.

Wage increases were also frequently cited among survey participants as a continued challenge, with 33% of small business owners reporting having raised wages within the past three months, and 20% planning to within the next three months.

While inflation was, and has remained for months, the top challenge cited by small business owners, the share of survey participants indicating that they had increased their prices dropped by two points in August, down to a net 20%.

Prices remain 20.9% higher on average when compared to February of 2020, however, the current annual inflation rate has cooled to 2.9%, the lowest level since March of 2021, and significantly lower than its recent peak of 9.1% in June of 2022.

And with the U.S. Federal Reserve expected to drop interest rates even further in the coming months, the NFIB’s monthly survey could show improvements in the near future.