Small-business owners are more pessimistic about the economy than they have been in decades, according to the Small Business Optimism Index released Tuesday by the National Federation of Independent Business.
The index was down by 2.4 points in March, the third monthly drop in a row. And the percentage of business owners who think things will get better over the next six months fell to the lowest level in the survey’s 48-year history.
Thirty-one percent of owners pointed to inflation as the single biggest problem facing their businesses, up by 5 points from February, the highest reading since the first quarter of 1981.
Rising prices are now regarded as a worse problem than the labor shortage.
“Their outlook has definitely soured over the last three months,” said Holly Wade, the executive director of the National Federation of Independent Business. “They continue to see inflation as this huge obstacle they have to navigate."
And it's getting bigger.
The Consumer Price Index, a key measure of the inflation rate, rose to 8.5 percent in March, up from 7.9 percent in February and fueled in large part by rising gas prices, according to data released Tuesday by the Bureau for Labor Statistics.
It is the first time small-business owners have faced such a sustained period of runaway price increases, and the sense of being in uncharted territory contributes to their downbeat expectations, Wade said.
“Most small-business owners have never experienced anything remotely close to this. Very few small businesses that are open now were open in the late ’70s and early ’80s,” she said. “Their profit dollars are being stretched pretty thin right now.”
And in some cases, they're disappearing completely.
Bianca Jackson, who owns BrickRose Exchange, an event space in Baltimore, said her costs for supplies and raw materials have risen “astronomically” since the beginning of the year.
In January, she signed a contract to host a small wedding in March. “Even within those two months, there were vast differences between what we quoted and what the actual price was,” she said. Flowers cost double, while decorating supplies and rentals were up by as much as 20 percent.
When the event was over, “I ran all the numbers, and we literally ended up with $25,” Jackson said.
While inflation may have surpassed labor as the biggest headache for business owners, the labor market is holding on as a very close second. Nearly half the business owners responding to the business federation’s survey reported that they had job openings they could not fill in March.
Supply chain problems are not letting up, either. Forty percent of owners said supply chain disruptions have had a significant impact on their businesses, an increase over February.
“There are no lights at the end of the tunnel that they can see yet,” Wade said.