Small business optimism had one of its largest drops ever in April, showing just how deeply small businesses feel the new threat of recession. The National Federation of Independent Business’s Small Business Optimism Index fell by 1.6 points in September, to 95.8. This substantial drop represents a major change in mood among small business owners. A large set of reasons explained this drop, from future prospects for sales to intentions for hiring to future plans for inventory.
In April, the net percent of small businesses expecting increased sales in the months ahead fell back into negative territory, declining to -1%. This slump is an ominous sign that there’s a loss of confidence in future sales growth. Plans to raise inventories floundered on net during the month. That’s a sign that a lot of these owners are just playing it safe because of some cloudy economic conditions.
Additionally, only 18% of small firms report intent to increase capital expenditures in the months ahead. This is the lowest share since the pandemic peak in April 2020. Small businesses are revealing a further drop in appetite to invest. This trend paints a portrait of their reluctance to tie down fiscal resources in a time of perpetual economic murkiness.
The labor market was similarly strained. In April, small businesses saw a five-point decline in compensation increases. This increase marks a significant slowing in wage growth. The net percent of small businesses with available jobs they couldn’t fill due to a lack of qualified applicants fell six points to 34%. Plans for hiring were lackluster, with just 13% of small business owners saying they plan to hire someone new.
Even with the drop in optimism across the board, there’s plenty of good news to be found. A net 15% of small business owners remain optimistic that economic conditions will be better six months from now. That optimism might be due to a string of recent successes in policy change and implementation. In April, one-quarter of all small businesses said they had increased their own prices. Moreover, 28% of them intended to raise their own prices within three months.
Perhaps most remarkably, the share of small businesses saying inflation is their biggest issue dropped by two percentage points that’s 14%! Inflation has officially made the list as the third most urgent small business concern. At the same time, taxes are the second largest worry overall. The logic-defying pressure from the taxes means owners are more sensitive than ever to burdens that regulations pile on top of other economic pressures.
The effective interest rate on short-term small business loans held steady over the month of April at 8.9%. One, interest rates have been surprisingly stable. Significantly, just 6% of SBOs said they had experienced increased rates compared to earlier months. All of these positive changes to the relatively stable borrowing environment that business owners face would certainly help business owners make necessary investments today.