Brief description of diving:
- Optimism in small businesses fell in December amid gloom over the outlook for economic growth and sales over the next six months, the National Federation of Independent Business (NFIB) said Tuesday. describing the findings behind his Small Business Optimism Index.
- High inflation remains a major business concern, the NFIB said, noting expectations of a recession in 2023. The tight labor market is also a leading challenge, with 41% of business owners reporting difficulty filling positions and 93% hiring or trying to hire. they cannot find enough qualified workers.
- “Small business owners are not optimistic about 2023 as sales and business conditions are expected to deteriorate, NFIB Chief Economist Bill Dunkelberg said in a statement.
Insight into diving:
Tthe decline in the NFIB’s optimism index “is an ominous sign,” Pantheon Macroeconomics chief economist Ian Shepherdson said in a note to clients.
A drop in gasoline prices over the past six months would normally boost business owner sentiment, he said Tuesday. The price of a gallon of gas has fallen 35% since June to $3.27, according to AAA.
“But the shock of higher interest rates and volatility in the stock market are stronger forces right now,” pushing the Optimism Index to bearish levels, Shepherdson said. The index fell below its 49-year average over the past 12 months, according to the NFIB.
Federal Reserve policymakers, after raising the benchmark interest rate by 4.25 percentage points last year, say they plan to continue tightening at their next meeting in an effort to reduce inflation from near 40-year highs.
“I am committed to taking further action to bring inflation back to our target,” Fed Governor Michelle Bowman he said in a speech on Tuesday.
“In recent months we have seen a decline in some measures of inflation, but we have a lot more work to do, so I expect the FOMC to continue raising interest rates to tighten monetary policy, as we stated after the December meeting,” Bowman said.
After additional increases, the federal funds rate will likely need to remain “restrictive” for some time to restore price stability, she said.
Rising borrowing costs have not yet fully taken hold of the economy, the NFIB said. “The negative impact of the dramatic increase in interest rates has not been fully felt.”
At the same time, according to the NFIB, small business owners are seeing a lot of damage from high price pressures. “Owners continue to cite inflation as their biggest business problem, complaining of rising costs for their inputs (inventory, suppliers, labor, energy, etc.), forcing them to raise their selling prices to cover costs.”