A survey has indicated that the US small-business self-confidence dropped to a 6-month low in December 2022. It also pointed out that worker shortages and inflation were critical issues for business owners. The NFIB (National Federation of Independent Business) reported its Small Business Optimism Index dropped 2.1 points to 89.8 in December.
Moreover, the decline in December was the lowest since June. The key reason was a drop in the share of owners who were expecting a significantly better business environment. This drop was the 12th consecutive month that the index traded below the 48-year average of 97. Owners were expecting feasible business conditions for their net shares in the next 6 months.
Their net share dropped to -51% in December from -43% in November, while it was -61% in June 2022. However, at least 33% of owners said inflation was one of the critical problems. It hasn’t changed since November with just 5 points drop compared to July’s reading. Keep in mind that it was a massive decline since the 4th quarter of 1979.
Major Concerns over Increasing Interest Rates
More than 42% of business owners reported increasing net average selling prices but below 8 points from November 2022. However, it also marked the lowest level since May 2021. Government data is expected to appear on Thursday, supposedly showing consumer prices remained in December from November. The data will supposedly show a smaller amount of annual inflation increase.
Meanwhile, the price pressures indicated signals of relaxation as 2022 came to a close. The US Federal Reserve officials haven’t yet shown any sign they experienced slowing down inflation anywhere. They were unable to find sufficient time for the stoppage of increasing interest rates in the near future. Last year, the Fed boosted its policy rate from zero in March and reached between 4.25% and 4.5% in December.
Labor Market Shortage was Still a Major Issue
The US Fed’s interest rate increase was the most aggressive since 1980. The central bank is looking to again increase it for another quarter percentage point. However, the Bank will finalize interest rates at its scheduled meeting on January 31 to February 1. It would supposedly push it up 5% prior to considering a halt. A shortage in the labor market was still a major concern for small businesses and the Fed.
More than 40% of business owners reported hard-to-fill job openings but were down 3 points from November 2022. The NFIB said there were various obstacles in filling those open positions. The major issues were related to the manufacturing, transportation, and construction industries. The chief economist for NFIB, William Dunkelberg, also issued a statement.
Business & Sales Conditions to Worsen in 2023
Dunkelberg said most small business owners aren’t encouraging about 2023 as business and sales conditions could become worsen. Meanwhile, business owners are maintaining various economic ups and downs and determined inflation. They will supposedly continue to sustain business with essential operational changes to counterbalance.
Keep in mind that US construction spending eventually skimmed in November. It was boosted from gains in nonresidential structures but higher mortgage rates hammered a single-family home construction. The US Commerce Department said that construction spending boosted at 0.3% in November after experiencing a decline of 0.3% in October.
Economists believe that Construction Spending will Boost
However, economists have suggested that construction spending will boost at 0.5%. The year-after-year construction spending climbed 8.5% in November 2022. The spending on private construction projects dropped by 0.8% in October but increased by 0.4% in the 4th quarter of 2022. Investment for private nonresidential structures such as gas and oil well drilling was boosted at 1.8%.
Meanwhile, the expenditure on residential construction dropped by 0.6%, and on single-family construction projects declined by 2.8%. The spending on multi-family building projects was boosted at 2.5% with benefits from powerful rental housing demand. The Federal Reserve’s rapidly increasing interest rate to tackle inflation is critically affecting the housing market.