Inflation Overtakes Labor Quality as Prime Concern for Small Businesses





Recent data from the National Federation of Independent Business (NFIB) Small Business Optimism Index reveals a significant shift in the concerns of small business owners. As of December 2023, inflation has overtaken labor quality as the primary challenge businesses face, signaling a notable change in the economic landscape.

The Rising Concern: Inflation

According to the NFIB report released on January 9, 2024, 23% of small business owners now cite inflation as their most significant operational hurdle, a one-point increase from the previous month. This trend has pushed inflation ahead of labor quality, which has been a dominant concern for much of the past year.



NFIB Chief Economist’s Insights

NFIB Chief Economist Bill Dunkelberg expressed concerns about the economic outlook for small businesses. “Small business owners remain very pessimistic about economic prospects this year,” Dunkelberg said. He emphasized the ongoing challenges of inflation and labor quality, noting a lack of confidence among business owners that these issues will improve in 2024.

Key Findings from the NFIB Report

  • Business Optimism: The NFIB Small Business Optimism Index rose to 91.9 in December yet remains below the 50-year average of 98 for the 24th consecutive month.
  • Compensation Plans: A net 29% of owners plan to increase compensation in the coming months, a slight decrease from November.
  • Selling Prices: The net percent of owners raising selling prices remained stable at 25%.
  • Sales Expectations: There’s a slight improvement in the expectation of real sales, with a net negative 4% anticipating higher sales.
  • Job Openings: 40% of owners reported unfilled job openings, with a net 16% planning to create new jobs in the next three months.
  • Capital Expenditures: 58% of owners reported capital outlays, with planned expenditures showing a slight increase.

Industry-Specific Trends


Small Business Deals


Notably, price hikes were most prevalent in the finance, retail, construction, services, and professional services sectors. Shortages in inventory were most common in finance, retail, and manufacturing.

Labor Concerns

Labor costs and labor quality continue to be significant issues. Nine percent of business owners identified labor costs as their top problem, while 20% pointed to labor quality.

Profit Trends and Credit Needs



The report also highlighted a net negative 25% of owners reporting positive profit trends, a slight improvement from November. Only 3% of owners indicated unmet borrowing needs, suggesting a lesser focus on external financing in the current climate.

The shift in concern from labor quality to inflation marks a critical point for small businesses as they navigate a complex economic environment. With inflation now leading as the top challenge, small businesses are adapting their strategies to address this new reality, underscoring the ever-evolving nature of the small business sector.

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