Small Businesses Squeezed by Inflation, Tight Job Market, Federal Reserve’s Hawkish Shift | Economy

Small businesses continue to face the ravages of inflation, with the percentage of owners expressing optimism about the next six months at the lowest level recorded in the 48-year-old history of the National Federal for Independent Business’s monthly survey.

The NFIB Small Business Optimism Index was unchanged in April at 93.2, the fourth consecutive month below the survey’s historic average of 98.

“Small business owners are struggling to deal with inflation pressures,” said NFIB Chief Economist Bill Dunkelberg. “The labor supply is not responding strongly to small businesses’ high wage offers and the impact of inflation has significantly disrupted business operations.”

Recent surveys of the job market have shown that small business hiring has stalled even as an increasing number of owners tell NFIB they plan to increase their employment in the next three month.

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“The net share of small businesses planning to increase their staff over the next three months rose six points in May to 26, matching its high for the year,” economists at Wells Fargo wrote on Tuesday.

“Moreover, 51% of small business owners reported they had job openings they could not fill, up four points from the prior month and matching the all-time high for the series.”

“Small businesses continue to struggle to find workers to fill open positions with 47% (seasonally adjusted) of all owners reported job openings they could not fill in the current period,” NFIB said. “Of those hiring or trying to hire, 93% of owners reported few or no qualified applicants for the positions they were trying to fill.”

The health of small businesses and, more generally, the state of the labor market will be on the mind of Federal Reserve policymakers today and Wednesday as they meet to consider raising interest rates to stamp out rampant inflation.

Friday’s report on consumer prices that showed inflation accelerating in May to an 8.6% annual rate from April’s 8.3% has observers predicting the Fed will raise rates by 75 basis points. That would be the biggest hike in nearly 30 years and above what had been expected – and more or less confirmed – by Fed Chairman Jerome Powell and others last month.

Early Tuesday, the government’s producer price index measuring wholesale inflation posted a 10.8% year over year increase, only slightly below the 11.5% record notched earlier this year.

The stock market has sold off in recent days, declining more than 800 points on Monday, and officially now in a bear market. Yields on bonds, meanwhile, have shot up as talk of a more hawkish stance by the Fed has gathered steam.

“There can be no question that there are reasons to worry,” says long-time Fed watcher Hugh Johnson. “The performance of the financial markets has been worrisome. Stock market sector performance has been very negative. Domestic money conditions have softened considerably.

“There is not enough liquidity to drive the markets and the economy,” Johnson adds. “Leading indicators for the economy declined for April, are likely to have declined for May, and may decline for June. The sharp decline in consumer expectations in early June, a component of the Index of Leading Economic Indicators, was not a good sign.”

But Johnson still forecasts a soft landing for the economy, rather than the Fed tightening so much it leads to a recession. “Although the drift toward a hard landing has certainly continued based upon the probability that Federal Reserve policy will raise interest rates by 50 basis points in September, we are, for now, encouraged by the combination of reasonable stock market valuation and widespread investor pessimism. ”


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