Small Business Optimism Falls to Six-Month Low as Holiday Shopping Disappoints

Shot of a young businesswoman looking stressed out in an office
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The holidays were not such a happy time for small business owners in the United States.

A key measure of optimism of small business owners fell in December, the National Federation of Independent Business said Tuesday. The trade group’s index of small business optimism fell to 89.8 from 91.9 in November, deeply below the historical average of 98 and the worst level since June.

The decline was unexpected. Economists had expected the index to remain basically unchanged.

“Overall, small business owners are not optimistic about 2023 as sales and business conditions are expected to deteriorate,” said NFIB Chief Economist Bill Dunkelberg. “Owners are managing several economic uncertainties and persistent inflation and they continue to make business and operational changes to compensate.”

The monthly survey indicated that sentiment among owners was dragged down by more pessimistic views of the economy and declining earnings trends.

Sales trends are deteriorating. A net negative eight percent of owners reported higher nominal sales in the past three months, down a point from November. The net percent of owners expecting higher real sales volumes fell two points to a net negative 10 percent. The percent reporting inventory increases fell from a net five percent to zero, meaning those building inventory were matched by those cutting inventory.

There was some good news on inflationary pressures. The share of owners raising selling prices fell eight points to a net 43 percent seasonally adjusted, the lowest level since May 2021. Unadjusted, 12 percent reported lower average selling prices and 51 percent reported higher prices. A net 24 percent plan price hikes, down 10 points from November.

The labor market, however, remains very tight, with demand for workers far outstripping supply. Fifty-five percent of owners said they were hiring or trying to hire in December and 93 percent of those trying to hire reported few or not qualified applicants.

The figures support other evidence that the holiday shopping season was disappointing for many businesses.


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