The National Federation of Independent Business’ (NFIB) small business optimism index ticked up 0.2 points to 98.4 in November from 98.2 in the month prior, making for a mostly flat trend. November’s headline print was in line with market expectations.
Four of the ten subcomponents fell on the month, four improved and two remained unchanged. Leading the charge was a six point increase in the share of businesses that view current inventory as being ‘too low’. At 15%, the latter is at a record-high level. Improvements in plans to increase inventories (+2 points to 10%) and expectations for higher real sales (+2 points to 2%) also helped lift the headline.
Weighing on the headline index was a four point decline in capital outlay plans (27%) and a one point decline in expectations about an improvement in the economy (-38%). The latter is tied with November 2012 for the lowest reading on record.
Most of the survey’s labor market indicators eased on the month. The share of firms with unfilled job openings and the share of firms planning to increase employment fell one point a piece to 48% and 25% respectively. At the same time, the share of firms reporting ‘few or no qualified’ applicants to their job postings fell two points to 56%. ‘Quality of labor’ concerns, however, remained top of mind, rising five points to 29% – a new record high in the survey’s 48-year history. Concerns regarding inflation increased further, rising two points to 18%.
Businesses continued to place a heavy focus on wage increases in order to attract and retain workers. Both the share of firms increasing worker compensation and those planning to do so held steady at record high levels of respectively 44% and 32%. This was accompanied by an elevated share of firms raising average selling prices (+6 points to 59%) and those planning to do so (+3 points to 54%).
Key Implications
Optimism among American small businesses remained largely unchanged in November, putting a pause to the downward trend that has characterized the second half of 2021. Businesses remain downbeat about an improvement in the economy and continue to struggle with finding qualified workers. In fact, ‘labor quality’ is the single-most important problem for 29% of businesses – the highest level on record in nearly half a century. Worsening epidemiological trends in many parts of the country may weigh on optimism further as the year draws to a close.
Concerns regarding inflation have shot higher in recent months, with an elevated 18% of businesses in November singling out inflation as their top business problem from just 1-3% between 2016 and the start of 2021. Businesses continue to raise employee compensation in order to attract and retain talent, with compensation metrics holding at all-time highs in November. Many of these added costs, including those incurred from supply chain disruptions, continue to be unloaded onto consumers, with price metrics also near the highest levels since the 1970s. Taken together, these indicators point to continued inflationary pressure in the near-term.
