Small Business Optimism Sags But Stays High

Optimism among U.S. small-business owners sagged slightly in May, but remained up beat according to the National Federation of Independent Business (NFIB). The Small Business Optimism Index slipped a fraction of a point to 104.5, but for the past 14 months the Index has average of 103.4, an unprecedented run in the 17-year history of the Index.

Fears of worsening inflation are credited as a major factor for the pause. In recent years the number of small-business owners citing inflation as their most pressing problem had been between 1% and 2%. Now that number has reached 6% — higher, but still a far cry from the record 41% of the early 1970s. Nevertheless, the increase is worrying for U.S. small business owners.

NFIB reported that small businesses planning to raise prices are now double what they were a year ago. Thirty percent indicated an intention to increase prices. Price hikes are more prevalent now than since the late 1980s. One-quarter of owners reported higher selling prices in May — up three points from April. A net 59% of agriculture firms, 33% of those in construction, and 29% of retailers said they raised prices last month.

Inflation is on the rise. Everyone expects interest rates to kick upward soon. The question is how much and how soon. It’s been my experience that a little inflation tends to work to the advantage of small businesses. A heating economy spurs both sales and investment on the part of small business owners. But a little inflation can go a long way. The trick is to keep it to manageable proportions. As the economy heats up, those selling to small businesses would be wise to quickly ramp up their efforts.

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